Advice needed on credit rating for mortgage purposes

Brainfish

Hi Guys,

This is my first post here so be gentle with me

Back Story :

A few years back I stupidly fell into the spiral of taking loans to pay off cards then kept using the cards.
My partner and I bought a house 4 years ago, not realising exactly how much I owed (yes stupid, I know now). Within a few months our outgoings were greater than the incoming. I'll be honest, I'm not even entirely sure how much I ended up owing but I thought it was around £14k when it was more likely >£30k (I should point out that the debts were all mine, my partner has never been in debt and I'm paying back from my earnings not hers)
Anyway, after panicking, I reached out to the first lifeline that I found which was a Debt Management Company, namely Baines & Earnst (Yes, I know, stupid, stupid, stupid. I wish I'd known about this place back then, it would have saved me so much money & hassle).
I'm now 4 years down the line, still living on the barest minimum to get by and paying £350/month to B&E.

We've decided that we cannot stand to live where we are any more due to neighbour troubles and have decided to move and I'm trying to find the easiest way to do so.

We have (at a guesstimate) approx £40k equity in the house and my debts have been reduced to £17k

I may be able to get a short term loan from a family member to pay off the remaining debts. When the house is sold, £20k of the equity will be used as a deposit on the new place and £17k will be paid back to the family member. After doing this and taking into account the increase in the mortgage & council tax payments for the new house, I will be £150/month better off than I am now and virtually debt free (apart from the 90% mortgage for the next 25 years)

I should point out that the debts were all of the unsecured type and I have never defaulted on my mortgage, council tax or utilities.

My question really is how will my current credit rating affect the mortgage application?

How long do these debts stay on your record? And is this measured from when you default or from when you finish repaying?

If the loan from the family member falls through, what would be my best course of action; should I try for an equity loan on top of my mortgage to pay off the debts then buy the new house, or should I just try for a mortgage on the new place and pay the debts when I sell my current house?

Sorry if I'm asking too much :rolleyes:

Thanks in advance,

Paul

lindens

Sorry I can't answer many of your questions, although I'm sure others will be along soon!
What I would advise is that when you do go for a new mortgage, go for an Independent Financial adviser to get one for you. He knows the market, and be honest with him about your financial past. He won't waste time going to those who won't touch you with a barge pole if the debt has affected your credit rating which a DMP does.

pania

Paul,

Hope this helps and don't ever apologise for posting or asking questions. thats what we are here for. Ok, now first off in line with the site i'll tell you that i am a mortgage advisor but my comments here aren't advice as i don't now you're full circumstances, just my opinion on the questions you've asked. Ok so thats the legalities out the way...

Now then, how much it would affect your mortgage will depend on the amount of defaults ccj's etc that you have. It is possible to get a mortgage now when you've been discharged bankrupt for one day so you won't have a problem with the credit situation. However you will be paying a premium rate of interest for the privilege of having the loan (i've been in your boat to, still am really, excellent with others money, (was)crap with my own!!!).
The equity loan wouldn't be the best idea. what you would say on the app is that all outstanding debt is to be paid on completion. This is usually fine for the lenders.
It is unusual to get a mortgage with less then 10% deposit if you have poor credit so keep this in mind when looking at house prices.
Bad credit usually stays on your file for 6 years. although with CCJ's you can negotiate with the company to remove it from your file on payment of the outstanding amount.
The fact you've not had any mortgage arrears will certainly go in your favour.
Grab a copy of your credit rating so your mortgage advisor will have a definate idea of what is going on there, without this info some advisors "test the water" with a more lenient company to see if it would go through. if not a further credit check MAY affect your credit rating so best to go armed.

And finally when you are working out how much you would have left to clear the debts and the deposit don't forget to take everything into account, estate agents fees, valuation fee, stamp duty on new house, moving costs, solicitors etc.

Really hope this helps you and best of luck.
P
xx

joeblack066

You shouldn't have a problem getting a mortgage, but you will have a slightly higher interest rate. Look very carefully into what you sign up for, especially in the current cliamet of interest rate rises. Remember to take into account any lock in redemption penalties with your current lender, and always look into whether the current lender will allow you to 'port' your morgtgage to a new property. In other words, make an informed choice!!

pania

What I would advise is that when you do go for a new mortgage, go for an Independent Financial adviser to get one for you. He knows the market, and be honest with him about your financial past. He won't waste time going to those who won't touch you with a barge pole if the debt has affected your credit rating which a DMP does.[/QUOTE]

And hers linden!!:rotfl: :rotfl:

sammy115

Check out your credit report. I got mine through https://www.checkmyfile.com - you get to see all three reports. It should tell you on there exactly how bad/good your file is and if and when any defaults have been applied. Any defaults drop off after six years of the date of the default..

Good luck and keep us informed

Brainfish

Wow, that was fast.

OK......

I have no CCJ's.

I have 8 debts of varying size, 2 of which have been "sold" to collection agencies (off the top of my head Moorcroft is one and I can't remember the other). The other 6 are still with the lender(s). Largest is around £5k.

Would the ones that are still with the lenders be negotiable? I've had a good relationship with them and never missed a payment since the original single default.
That's a lie, I was late one month on all payments due to my bank messing up the payment to B&E who then didn't pay anyone and didn't contact me to ask why I hadn't made the payment that month. :mad:

The mortgage will be £90k on a £110k house (so 20% ish deposit and no stamp duty)

There's £3k left over from the equity to cover expenses of the move.

I'm not tied in to my current lender (Halifax Tracker) but would consider them as 1st choice for new mortgage.

New mortgage cost was based on a rate of 5.94% (currently on 5.44%)

Most of your replies have confirmed what I'd hoped (mainly from reading here)
I know my circumstances are no where near as bad or seemingly hopeless as some of the good people here, but true to form, I'm being shown that there is light at the end of that long dark tunnel.

Thanks Guys :T :T :T :T

jo1972

pania wrote: »

It is possible to get a mortgage now when you've been discharged bankrupt for one day so you won't have a problem with the credit situation. However you will be paying a premium rate of interest for the privilege of having the loan

Paul, I hope you don't mind me barging into your thread but I'm in a similar situation....

Pania, where do I go to get a mortgage if I've got bad credit rating, should I just go purely on the advice of an IFA? I'm really worried about googling someone cos you never know if it's dodgy!!

lindens

pania wrote: »

What I would advise is that when you do go for a new mortgage, go for an Independent Financial adviser to get one for you. He knows the market, and be honest with him about your financial past. He won't waste time going to those who won't touch you with a barge pole if the debt has affected your credit rating which a DMP does.

And hers linden!!:rotfl: :rotfl:[/QUOTE]

Indeed:o
I meant "they" obviously.....

Brainfish

jo1972 wrote: »

Paul, I hope you don't mind me barging into your thread but I'm in a similar situation....

No probs

pania, one thing I do need to get clear is whether clearing the debts before getting the mortgage is more advisable/easier than clearing by using the new mortgage. Or does it not really matter if I say all debts will be cleared?

Sorry :embarasse

pania

sorry chaps, been running, back now!!

Right, brainfish. Either or really hon no difference between. If you clear the debt then it can take up to six months to show as cleared on your credit rating. Saying that you will clear it off from the the proceeds of the sale is fine. some lenders make that a condition of the mortgage offer.
How long ago were the defaults? if over a year ago then some of the lenders you wouldn't expect (ie abbey, northern rock may consider you.)
is it only 3k you are budgeting for the entire costs? or is this excluding estate agency and legal fees?

jo1972. word of mouth is usually the best way to find someone. ask around your friends and relatives if they've had positive dealings with anyone. I've said this before and ONLY do business with someone you trust. go to see three different advisors, see which one you get the best feeling about. Most independamt lenders will charge you a fee, however there are plenty out there which will just be happy with the commission and not leave you out of pocket.
Also check out the referrers board on here as i believe some of the regular board advisors are on there.
Hope this helps!
P