Deafult and Default notice - how does it work?

loopy.magic

I've recently entered a DMP and in a few months I will probably get some defaults from some of the creditors.

I was hoping someone could reply and give me a brief summary of what happens when an account is marked as defaulted? Before, During and After a default. There is a slim chance that I maybe able to get some extra funds in the next few weeks, if so I'd like to avoid defaults. A black mark that prevents me from getting a mortgage for the next 6 years is something I would like to avoid.

Is there a warning letter from the creditor before a default?, how much notice do you get before a default is registered? Are creditors open to not defaulting you if you negiotate an amount to pay per month above the agreed pro rata amount at the initial DMP start?

Thanks

FireWyrm

With regard to getting a mortgage with defaults....it really depends on how serious and how often. For example, I had no problem getting a mortgage in late April despite busting my £1500 overdraft once in January and again in March as well as having a catalogue default from December. I thought I was in for a hard time, but my mortgage provider didnt even ask for more than 1 month's account statements. Defaults dont equal automatic rejection, allot has to do with affordability and how well you are managing. If you bust your overdraft every month for 6 months, then they'll probably tell you where to sling your hook, but nobody is perfect and mistakes happen. The banks know this.

loopy.magic

Based on other threads and posts I read, it sounded like a default = no mortgage (except possibly sub-prime). I have 7 creditors and I really don't know at what stage they will default and even if all of them will default me.

Tixy

A creditor must send you out a default notice giving you 14days to rectify the default prior to a default being registered with the credit reference agencies. That letter will probably be headed up notice of default so keep an eye out for any.

Its likely that if you are in a DMP most if not all of your creditors will default you. On a DMP some will do it very quick, within a month, others may wait the usual 3-6months.

Usually the only way to stop the default being registered after the default notice is to pay off all the arrears and then keep up with original minimum payments. In some cases, such as an overdraft they may require the whole debt to be paid off to stop a default being registered. I'd suggest to be cautious of agreeing slightly higher payments and trying to stop a default, what that can lead to is that a default is simply put on at a later point (eg when you can no longer increase payments or when the debt is sold to a debt collector), which can lead to your file being affected for a much longer period. Many people feel on a DMP the best way is to get all your defaults very soon into the DMP.

It is possible to get mortgages with defaults on your credit file - but these will likely be subprime mortgages with higher interest rates and requiring a larger deposit than you otherwise would.

How long is your DMP predicted to last? is it realistic that you are going to be able to pay off all debts and save up a deposit within the next 6years anyway? (assuming you are not currently a homeowner).

FireWyrm

loopy.magic wrote: »

Based on other threads and posts I read, it sounded like a default = no mortgage (except possibly sub-prime). I have 7 creditors and I really don't know at what stage they will default and even if all of them will default me.

Not according to my latest information from a Mortgage Advisor this year. Apparently, the banks are bending a little. If you have a decent deposit, which you need anyway, are managing (mostly) your money, you dont default that often or have a good explanation as to why, defaults needn't be the end of the world and certainly not for 6 years into the future. It's on a bank by bank basis though. Barclays wouldnt touch me with a barge pole but the big building societies were queuing up to have me with them. Like I said, I busted my £1500 overdraft by £500 (twice) this year and the last time just 1 month before I applied for a mortgage. My advisor says that although they take the credit rating into account, it's not the be-all and end-all of the story.

loopy.magic

Tixy wrote: »

A creditor must send you out a default notice giving you 14days to rectify the default prior to a default being registered with the credit reference agencies. That letter will probably be headed up notice of default so keep an eye out for any.

Its likely that if you are in a DMP most if not all of your creditors will default you. On a DMP some will do it very quick, within a month, others may wait the usual 3-6months.

Usually the only way to stop the default being registered after the default notice is to pay off all the arrears and then keep up with original minimum payments. In some cases, such as an overdraft they may require the whole debt to be paid off to stop a default being registered. I'd suggest to be cautious of agreeing slightly higher payments and trying to stop a default, what that can lead to is that a default is simply put on at a later point (eg when you can no longer increase payments or when the debt is sold to a debt collector), which can lead to your file being affected for a much longer period. Many people feel on a DMP the best way is to get all your defaults very soon into the DMP.

It is possible to get mortgages with defaults on your credit file - but these will likely be subprime mortgages with higher interest rates and requiring a larger deposit than you otherwise would.

How long is your DMP predicted to last? is it realistic that you are going to be able to pay off all debts and save up a deposit within the next 6years anyway? (assuming you are not currently a homeowner).

Thanks Tixy, as ever a wonderfully detailed reply with lots of good advice

loopy.magic

Redscouser wrote: »

Hi my name is xxxx xxxxxxx xxxxxx. !i have for the past 4 months been in dispute with llyods tsb regarding a few accoutants i.e loans and credit cards. Heres the best bit i am not nor have i ever been a customer of llyods tsb.

Er.. OK. Not really sure what this has to do with my thread. Please post this as a new thread yourself.

fermi

loopy.magic wrote: »

Er.. OK. Not really sure what this has to do with my thread. Please post this as a new thread yourself.

Moved to a new thread.

loopy.magic

Tixy wrote: »

It is possible to get mortgages with defaults on your credit file - but these will likely be subprime mortgages with higher interest rates and requiring a larger deposit than you otherwise would.

How long is your DMP predicted to last? is it realistic that you are going to be able to pay off all debts and save up a deposit within the next 6years anyway? (assuming you are not currently a homeowner).

Can you give me an idea what an average sub-prime mortgage interest rate would be and the deposit percentage?

My DMP is looking like 5 years, It's very unlikely I will be able to save up a deposit as well as service the DMP. I'm just looking at the alternatives and possible future developments which hopefully allow me to shorten both the DMP and time to get a mortgage deposit.

FireWyrm

For what it's worth. I dont see the banks going back to the 'old way' as it were of 100%+ mortgages. Especially after the grilling they got and continue to get in the press lately. Personally, I dont see it as their fault entirely, people were presuring them for bigger and bigger mortgages which they obliged and then selling the debt like the never-ending roundabout it was. The more they sold, the worse the market got, the more people needed to get a house and the more they demanded from the banks. It's not right, but it's six of one and half dozen of the other to my mind.

So, that said, I can only give you my experience as of this year and the last few months. I've told you that I busted my overdraft twice this year and I wouldnt be on this forum if I wasnt at least struggling a little with my debt burden which the bank is all fully aware of. I sold a previous house at the height of the boom and so I have a £30K cash deposit. I have just (well, still trying) to buy a perfectly respectable 3 bed victorian terrace for £142K. The bank has asked for 15% deposit which is just fine for me which amounts to 21K. I have a two year fixed rate of 4.64%. I know this isnt a tracker, but really, I anticipate heavy interest rate rises in the not too distant future which is why opted for a fix. It's a gamble either way. I anticipate a slight rise in the market over the next year, but nothing like the boom time. The bank has valued the house I want at exactly the price I have agreed to pay - so they're not worried too much about it bottoming out in negative equity. My original enquiry back in April was with Santander (which was accepted), then it went to Nationwide and now it's stuck at Halifax on the advice of my Mortgage Advisor who's been hunting here and there for a decent mortgage. I have no idea why we switched providers, but I think it might have something to do with products going on and off the market so quickly. Anyway, Halifax have been quite patient and have re-issued the mortgage offer 3 times so far due to houses falling through etc. I have until September to take them up on it.

Now, since you say that you are on a DMP for the next 5 years, I think that by the time you get around to it, the market will probably have picked up a little and the banks have untwisted their knickers. If you save hard, you might just be able to catch the train before it goes and we all start the boom treadmill again. My advisor told me that 15% deposit bought you a decent pre-boom mortgage and most banks wont settle for less than 10 although there are a few here and there still. He also told me not to go with new-builds where they offer 98% mortgages because you pay about 7% interest even now. If you can bare it, it might just be a route for you, but not until you have chomped a little more on that DMP.

Tixy

loopy.magic wrote: »

Can you give me an idea what an average sub-prime mortgage interest rate would be and the deposit percentage?

My DMP is looking like 5 years, It's very unlikely I will be able to save up a deposit as well as service the DMP. I'm just looking at the alternatives and possible future developments which hopefully allow me to shorten both the DMP and time to get a mortgage deposit.

I don't know, but I would expect you would be looking at a minimum of 25% deposit, possibly more. And I would guess that you'd probably be looking at a couple of percent more than the high street rates at that point in time. But to be honest I've no personal experience, maybe the mortgage board might be able to give some clearer guidance? (I think there are some mortgage brokers who post on there).

If you won't be able to pay the DMP and save a deposit in 6years then I wouldn't worry too much about the defaults. I'd just focus on the DMP and if you pay it off within 5 or even 4years that will give you a year or 2 to save for a deposit and try to gradually build a positive credit history so you'll then be in a position to get a prime mortgage.