Mortgages for those with bad credit?

desperatedad

Can anyone here suggest where to go/look for mortgages for people like myself with a less than perfect credit history and a possible bankruptcy on the cards (Upon the advice of the CCCS).

I'm on a DMP with the CCCS, but don't currently have any CCJs that I'm aware of and we've never missed a payment on the mortgage or secured loan (or household related bills for that matter).

Basically we have a house which was valued about a month ago at £215,000 and we have a mortgage with abbey and we also have a secured loan with Picture which totals £230,000. I appreciate we are in negative equity, that is why we are not going to be selling the house if I declare myself BR.

We have been able to afford the payments to date and really love the house and the area, so really don't want to lose it, especially as we have a young family. We just want to do everything we can in the face of rising base rates to hang on to the house by dealing as best we can with this debt. Our joint annual income is £62,000 before deductions and not including our regular overtime and my wife has a perfect credit history (unlike me unfortunately).

Anyone suggest ways to best deal with this, such as combining both secured debts, or where to go where I might still get treated like a human being/who to talk to?

Any feedback on this matter would be appreciated.

Regards
DD

silvercar

Well done for facing upto your problems and dealing with your debt.

A good place for advice may be the bankruptcy board.

Its a really complex area - going bankrupt and keeping your home. Worst case scenario is getting repossessed after bankruptcy - that way the lender could chase you for the negative equity. Get repossessed before bankruptcy and the (then unsecured) debt will be written off with the bankruptcy AFAIK.

I understand that the negative equity means you can buy back the beneficial interest, but this only works if you can afford the mortgage repayments. Struggling with the payments post bankruptcy could leave you igoing round in a debt circle.

luckyfool

What silvercar says. If you do decide to stick with the property then it might be worth seeing if Abbey will switch you onto a new deal such as a long term fixed rate (if you are on the SVR just now and do not have penalties).

Also if you do stay in the property make sure you do buy back the beneficial interest from the Trustee in Bankruptcy. Otherwise the danger is years down the line when you do have equity in the property the trustee comes back to claim it. In a negative equity scenario such as this the beneficial interest might only be a few hundred pounds to a thousand.

HelpWhereIcan

Bankruptcy should be an option of last resort and does not really protect you from a lender starting repossession proceedingsfor non payment. In some cases declaring bankruptcy can prompt a lender to start proceedings.

There are alternatives to bankruptcy and, although I don't know enough about your particular circumstances, I think there is often a tendancy to advise people to go for Bankruptcy/IVA when they don't really need to.

Having said that, if you have unsecured debts in the background, you may want to consider an IVA rather than bankruptcy as it may free up income for you to meet your secured payments.

Remortgaging/Refinancing your secured loan will be difficult and may only be worthwhile/possible depending on how the secured loan and mortgage are split at the moment and what rate and term you have your mortgage and secured loan over at the moment and if you could improve on these. It will also depend on how you have done keeping up with your secured payments.

Sometimes a quick fix can be to ask your existing lenders to extend your terms eg from 20 years remaining to 25 as that may free up enough income for you.

Another option may be to ask the Abbey to accept a period of interest only payments while you get back on your feet.

Get some advice from a whole of market broker - ideally one that will not take advantage and charge a huge fee just cos you are in difficulty.

Use personal reccomendations to pick one or even something like the Yellow pages etc. No harm in speaking to more than one and always make sure to ask the questions Martin suggests in http://www.moneysavingexpert.com/cgi-bin/viewnews.cgi?newsid1101649966,86816#step2.

I would also suggest that you ask if they can deal with secured loans and possibly even IVAs (without charging any broker fees) as well. If they can't shop around for the IVA and secured loan services but make sure you try and find someone who does not charge broker fees for the secured loan, or charge an upfront 'proposal fee' for an IVA.

Be careful of anyone who approaches you unsolicited and use the services of a face to face adviser unless you are confident enough to deal with someone via post & email.

Hope this helps

jamesd

Make sure that the CCCS knows your updated mortgage payment amounts so it can adjust the amounts you must pay under the DMP and keep them affordable as rates rise. Those debts can adjust, the mortgage is not so flexible and must be paid (though going interest only and taking repayment holidays is useful).

Bankruptcy is unlikely to be the best route, but an IVA may be useful if the debt becomes unmanageable. Bankruptcy is an option and also a tool to use against creditors (particularly any who threaten it... ), since you have negative equity and they end up with nothing if you go that route, while you end up discharged with no debt in a few years, but with a poor credit record for six years.

Delaying may be better. This time next year a change in consumer credit laws takes effect and prohibits the charging of compound interest (interest on interest) on those who default on credit agreements, allowing only simple interest (interest on the original debt). Exploiting this change in that law is likely to be better than either bankruptcy or an IVA because it will normally substantially reduce the monthly interest payments.

It's also worth looking at rental houses in your area so you can see what you could rent for a similar price and also what you could rent out your house for if you moved into a less expensive one for a few years - this might significantly improve your balance of payments and help to make significant progress more easily. One advantage of renting out your house is that the mortgage interest is a business expense that reduces rental income so only the rent above that, if any, is taxable. I don't know how this works with a secured loan but that might be included in the deductible interest. However, if you can't rent another place more cheaply there's no real advantage. Some lenders will grant permission to lend for no charge, others ask for a 1% higher interest rate so check with a broker before mentioning it to a lender.

A house price rise of 7% will remove the negative equity and that could happen in a year if things go as they have been.

So long as you're keeping up with the payments on the debts the salary increases, small though they are, will start to out-pace them over time. 3% a year for five years gets you 16% more income - about 7-8000 after tax and NI. That's enough to really make a dent in the debts.

Don't neglect the option of bankruptcy - its a perfectly valid option, with nothing wrong in taking it - but if you're keeping up with the payments it seems avoidable with fewer negative credit consequences.

desperatedad

Thanks for all the feedback and sorry for the delay, been trying to get my head together a bit and haven't been online much lately, though things at home are ok and we're plodding along.

I still think BR will be my best option. Due to the size of the debt, an IVA comes in around £350-400 minimum per month compared to £250 on the DMP with the CCCS and at the moment I just don't have the extra to make that kind of commitment.

I thought with BR that once declared bankrupt your creditors couldn't touch you?

I appreciate if we keep the house and carry on making the payments (which we can and have been able to afford whilst I'm on the DMP comfortable), that secured debt could be recovered, but in my case with negative equity I'm assummin gthis simpl isn't an option for them and all the while we are making the mortgage payments and the secured loan payments they would have no reason to even look at it. We have swithed our mortgage over to interest only too as suggested and that has eased things so that now we can afford to get by without scrabbling behind the sofa for pennies, but things are obviously far from ideal, especially when you consider our joint income is quite good, but after all the bills/payments/food/etc, there is nothing left at all.

Cheers
DD