downsizing with bad credit

inkythumbs

Hi,
We have decided to move to a cheaper house to prepare for an anticipated drop in income in a couple of years. We currently have a mortgage of 190k on a house bought 6 years ago for 285k. The current valuation is 260k.
We are looking at a house on the market for 160K, although it would need a loft conversion to be big enough for us, which would cost 20-30k.
We have 45k of (non-priority) debts which we have been paying off regularly for four years, having come to arrangements with our creditors via citizens advice.
We couldn't get credit to buy a pop-up toaster, never mind a mortgage, in the current climate.Will our mortgage company be likely to allow us to pay off and start a new, smaller mortgage? We have never missed a mortgage payment. I am going to phone them tomorrow, but am nervous. Should I come clean about the consumer debts/bad credit from the start? We got our mortgage from Standard Life bank via a broker , but the mortgage has since been sold to Barclays.
Should we aim to settle our debts from the equity on our house? This would leave a deposit of only 25k. Do we even have a choice about this?
Thanks in advance for any advice.

khonsu

Hi Inkythumbs, reading your post was like hearing my own situation verbatin - except we have a loan secured against the house.

Really interested to hear any experts views on this area.

GMS

You cannot simply transfer the mortgage from one property to another. 'Porting' involves a new application which means meeting lending criteria at that time. it will be treated as a new application.

Changes in circumstances since the first mortgage will be taken into account

hcb42

I would say this is likely to be difficult, and age etc might also be a barrier, as you are still borrowing a significant sum of money for the new house. is that affordable? otherwise you are right back where you started

centaurandrew

By "came to an agreement with creditors" do you mean an IVA? Or something less formal?

inkythumbs

We are 45 and 49, and our arrangements with our creditors were less formal than an IVA, just a letter, breakdown of incomings/outgoings etc, on our behalf, from the citizens advice bureau. We have multiple creditors and pay around £200 per month in total to them. All the debts have been 'frozen', with no interest accruing.

inkythumbs

I forgot to say we currently pay £1,300 a month in mortgage payments. With a mortgage of £120k (rather than our current £190k) it would be less, I guess around £900?

My partners earnings are fixed at around 30k pa, he has one of those 'jobs for life' you hear about. My income is around the same amount, but funding for my job ends in 2015. I will get another job but it is unlikely to be so well paid.

hcb42

at about 6% for 18 years, yes about £900 for new mortgage.

The debt, paid off at only £200 a month will take the same length of time to clear, personally I would also want to pursue a plan to get that from around my neck.

If you pay off the debt then you are effectively just refinancing it another way, only this time with interest however, and that will push your payments almost all the way back up to where the mortgage started (at £165K mortgage approx).

you would need to see a good broker I would suggest but there wont be a massive reduction in your payments or anything, assuming that you can indeed get a mortgage approval, and if income is going down then it may not be the answer either. Have you done a statement of affairs calculation on the debt free wannabe board?

inkythumbs

Thanks hcb42,
So would you recommend contacting a broker before contacting our own mortgage provider ?

And if/when we do contact our own provider, do we need to come completely clean about the debts? Might this affect our current mortgage in any way?

Ditto a broker- I remember our original broker had a sort of 'don't ask, don't tell' policy on debts! I reckon its probably stricter now!

re: paying off debts. We do feel we have the best of all possible worlds at the moment- no interest and affordable repayments- so keeping this state of affairs is our preference - as you suggest it will be paid off by retirement, and we have no intention of ever borrowing money for anything except cars and houses from now on.

holly_hobby

Your debts that are under a repayment schedule will all be recorded as defaults - and will significantly affect any application for finance.

Defaults are recorded for 6 yrs following their registration, at which point they will effectively "drop off" your credit record with the credit reference agencies (CRAs).

Have you obtained a copy of your credit records with the CRAs ? If not I would do this, and take it with you to any broker you engage.

Check my file, is a multi agency search engine (equifax, experian and callcredit) and has a free 30 day trial (easy to cancel on line) - http://www.checkmyfile.com/. NB - please disregard any "scores" illustrated as they are meaningless in respect of mortgage applications.

With respect to a mge the lower the LTV the better, but the number and size of the defaults may make it insumountable even for an experienced broker.

Alternatively, why not go into rented until the defaults disappear and your standing improves.

Hope this helps

Holly

inkythumbs

Hi Holly,
Really useful advice thanks- I checked my credit on the site you recommended and it wasn't as bad as I feared. Only one default, although I know my partner has many more. Also, we have less to pay off on the house than I realised, which is also good news. Just got to get partner to check his credit now, and contact a broker.