Outstanding loans on completion - some questions!

lizards

We are one of *those* people who took out a Northern Rock "Together" mortgage back in 2004 - went for the full amount of unsecured loan too. With lots of overpaying, at long last we're finally out of the inevitable negative equity that ensued. If the house sells for what we are hoping, we'll have a bit for a deposit too - we can just about scrape 10% for the size of property we need long term. Well, sort of.. I'll explain in a minute.

We have no other debts, no CCJs or defaults, and a pretty good credit rating.. there's one unauthorised overdraft accident from a few months back that was rectified within 24 hours (still kicking ourselves over it, a complete freak occurrence) but that is it. We often dip into our authorised overdraft but aside from that one time have never gone over in the last few years. We have credit cards with reasonable limits which are paid off each month.

There's five of us crammed into a tiny two bedroom terrace and we're out of space, to put it mildly, especially as the children are getting bigger. We can't hold out here much longer. We're planning to move to a completely new area and obviously a much bigger house which we want to last us for the children growing up.

We have a 3 year old daughter who will need to apply for primary school starting September 2013. The closing date for applications (with required proof of address etc) is in January 2013. If we aren't in a new place by then, not only will it be extremely unlikely she'd get into a decent school, we'll be lucky if she gets into any school within any reasonable distance. We have two other children (one already school age) so getting them all into preferably the same school is kind of important and having one accepted at a school makes it easier to get the older one in too. So the deadline is critical.. obviously it depends on us selling our house in time too but for the purposes of this question I'd like you to assume that's not the issue.

Northern Rock allow you to keep the unsecured part of the loan going when you move house, albeit at an inflated interest rate. If we don't pay this off when we sell the house, then we have enough equity for a deposit of 10%. My husband gets a pretty reliable and hefty bonus end of January 2013, which would close to cover our outstanding unsecured loan which would be around 20K. Obviously we need to move before he gets that bonus.

Assuming the stars aligned and we completed in December/early January, would a mortgage provider be happy that the Northern Rock unsecured loan wasn't paid off for a further 30-60 days? Or indeed could we get a mortgage *with* that debt as it stands (i.e. not saying it will be paid off on completion) ?

One option could be to sell the house and then rent short term, but it's a bit of an upheaval for all of us to move twice in short succession. Also we're then we're tied into finding a new property in the immediate area we'd be renting in due to the schooling situation, rather than the several favourite areas we have to choose from right now. If it comes to that though, and we can't get a mortgage until the unsecured loan is paid off, it's what we'll have to do.

As an aside, we bank with First Direct where we've been for 7 years. We'd be going for a fairly high multiple of single salary (2.5-4 times, depending on what they accept as income once base salary is accounted for) and obviously a high LTV of 90%.. is it even worth our while trying First Direct given their pickiness? Especially given the slip up a few months back with the overdraft and the fact we do use the overdraft..

Apologies for the essay, but I wanted to be as thorough as possible and not miss out anything important and to save people asking questions!

Thank you very much for any help!!

lizards

Extra info:

I forgot to add - obviously we've budgeted for stamp duty and moving expenses too on top of the deposit requirements.

I checked and we went over our overdraft on March 23rd if that makes any difference (i.e. do they only look back 3 months/6 months/forever etc)

And it goes without saying if we don't go with First Direct, we'll be getting a broker.

DannyboyMidlands

So you are basically borrowing your deposit? At an inflated rate?

Dave_Ham

First off - do not worry about repaying the loan, leave it as not paying off but this will subject to affordability.

The loan monthly payment would come off of your income multiples.

Speak to First Direct without a credit score by all means, I think it will be doubtful as there are too many points that could be an issue for them..

Aside from that there are 90% lenders out there that are lending, just need to ensure that your situation fits their criteria and that you can piece the sale and purchase together and all done in time...

Stressful times ahead - the process is hard work so would suggest getting a decent broker, decent solicitor and some good wine nearby...

Read up on Estate Agents too and prepare yourself....

lizards

DannyboyMidlands - Not really, except for a month or so at most and even then it's nowhere near the whole lot. We definitely have the means to pay it off but I can't see an employer (especially a large one like this) offering to pay a bonus a month early! The timing is just really, really unfortunate.

Dave Ham - Thank you! That was my feeling as regards First Direct too - pretty unlikely. But maybe worth a chat.

I'm assuming in terms of affordability we'd have to add on the 8% (bleh) interest penalty to the unsecured loan payments when giving the figures, even though obviously we're paying the 4.79% now. A lot depends on what we sell this place for/price of the new place as to how much of the unsecured loan will be left, but it'll be the bulk of it.

Dave_Ham

Probably down to your own morals, they will take the figure on your credit report as monthly commitment currently.

Ensure First Direct do not credit score you though, just a chat about policy and affordability..

lizards

Thanks!!

Heh, it's a tricky one morally, given we know we're going to make probably only the one payment at that rate before it's all paid off and by being honest we might not get the house we need at all! The decision would be made easier by knowing how much of the non-base salary income (bonuses, overtime, share options etc) they are willing to take into account. Hopefully whoever we go with will take at least some of it into account so we can be honest and there would be no tough choices to make as being dishonest sits very badly with me.

Yes, I'll make it VERY clear to FD that they are not to credit score us! Last thing we need is another thing to reduce our chances..

lizards

Just got our credit reports from Experian. I know it doesn't mean a whole lot, but I have 982 and husband has 989 which is reassuring - it's pretty much the NR unsecured loan doing the "damage". I took out a credit card recently for business use (so I can keep spending separate) which is what has lost me the extra 7.

What interests me (and may interest any lurkers!) is that there is no red mark against either of us for going over the credit limit back in March - I thought First Direct always reported! We did get fined for it even though it was under 24 hours and only for about £20 or so, so I'm surprised. It's good news though as if we don't go with First Direct hopefully the seemingly squeaky clean record will improve our chances elsewhere.