Been turned down for mortgage - advice needed!

I_wish_I'd_been_Prudent!

We've just been turned down by a high street lender (not our bank) and need some advice.

We wanted to move house taking out a new £250k mortgage with a £30k deposit. The rest of the money we would make from the sale of our existing house (about £25k) we were planning to use on debt repayment. The building society said they were prepared to lend us £265k based on our income. Although we have always had a very good credit rating and have never been turned down for credit before we had a few problems with late payments to credit cards in November and December last year. We also use both of our overdrafts each month. The reason we were turned down was because of our overdrafts, not the total of our current debt (apparently) which they called "overcommitment". However, I worked out that our monthly mortgage payment would actually be less than our current monthly outgoings.

So my question is this:
Should we sell our house now, pay off our "overcommitments", rent for a couple of months then reapply for another mortgage or should we apply elsewhere? We don't want to make the situation worse by applying and getting turned down again. The lady at the building society implied that we would be more likely to get accepted if we went down the debt repayment and rent road.

Thanks for reading this and look forward to reading any advice you may have. I've tried to give as much info as I can without being too wordy!

firesidemaid

hi there

am not a mortgage expert so i cannot comment on that aspect of your post.

i was just wondering if you have also addressed the reasons for your debts and overdrafts?

i am presuming you have good wages with the amount ot mortgage you can get?

also, why not set up direct debits for the minimum amounts on your credit cards - you can always pay extra. that way you will not miss a payment again.

I_wish_I'd_been_Prudent!

Thanks for your reply. We have been 'chipping' away at our debt in the last 12 months (courtesy of Martin's expert advice on his site). We have now set up DD's but I fear the damage has been done.
Kind regards

LisaT186

Unfortunately late payments on any debts does not look good to a mortgage lender. In an ideal world you would if you could pay the debts off and start again, but that is effectively what you will be doing when you move house. Have you remained within your overdraft limits?

The first thing to do is to sit down with a realistic budget planner and make sure that if you move that you won't be using your overdrafts or running up credit card debts (mind you if you've been on this site for a year, you've probably done that already )

Secondly go and visit a broker. A broker will be able to speak to the lenders before putting an application through to see how they are going to view the late payments. That way you won't be adding loads of searches to your credit file.

Bestthingsinlifearefree

If you are already in debt why are you trying to move (which costs lot of money) AND taking on more debt in the form of a bigger mortgage ?

Can you not stay in your exisiting property and pay of your debts ?

Best,

lush_walrus

I might be missing something here, but I understand your position as at the moment you have £30k, with a further £25k to be released from the sale of your house, making a total of £55k deposit. Can you not use the £30k to pay off your debts now so that you have a clean slate and then apply for a mortgage? Or am I misunderstanding!

I_wish_I'd_been_Prudent!

Thanks for so many useful replies. We did plan to pay off all of our debts before moving (our house is too small for our family) but I realised that we had at least £55k equity in our house and to use some of the equity to pay our debts and move meant we would immediately be better off every month instead of having no money at all for the next two/three years. We know this means we'll be paying more off in terms of interest on the mortgage but to have more money every month is more important to us in the short term.

To answer LisaT186: We have crept over our overdraft a couple of times before the end of 2006. We only got into the level of debt due to redundancy two years ago (now in very stable jobs). We will try the broker route - thanks for the great tip!

LisaT186

no problem and good luck with it all. Come back with any questions you may have on the journey!

herbiesjp

Your credit problems do not look too bad.

It may be wirth while seeing if your broker could find a high street lender to agree a mortgage for you on standard terms.

Depending on your building society, they may be a little restrictive on their lending policy.

There could be other more flexible lenders who could help

HTH