Re - Mortgaging to move home - General advice please

cmssbrie

Hi guys,

Ok, so me and my wife ended up on a DMP in 2008. All creditors were paid in full eventually - and the DMP ended in October 2012. At present, all defaults that we got because of the DMP will come off our credit files in December this year. However, 2 x accounts will stay on as 'Arrangement to Pay' up until the end of 2016 (6 years after our final payments).

I am currently working on getting those markers changed to defaults (thanks to the advice on the Credit Report forum), but worst case scenario, they will stay on file until 2018, but the balances were all paid in 2012.

At present, we have a mortgage with Northern Rock - with 60K outstanding. When we got that mortgage, we also took out an unsecured loan with Northern Rock - to run for the length of the mortgage as well - this has 10K remaining on it.

Our current house is worth about 80K.

I asked Northern Rock if I could take the mortgage elsewhere, but leave the loan with them (am thinking we will be able to generate a deposit so that we can move based on this) - which they said yep, no problem.

We both work full time, and earn around 45K between us per year.

Other than the DMP stuff, we both have some 'good' account information on our credit files - mobile phones, Credit cards (all paid on time, and balances paid in full each month) which we have been building up for the past couple of years.

My questions are:

1) Are we likely to get a mortgage come next year - and are we likely to get decent rates - even with the two 'Arrangement To Pay' markers from 2012?

2) When you go for a re-mortgage to move home, how do they calculate what they will lend you? - i.e will they value our house, and base it on that valuation + your monthly income / outgoings?

3) If our house is valued at 80K, and we have the 60K current mortgage, would the lender accept the surplus (20K) as a deposit? - or do you need to have some cold hard cash as your deposit?

4) Based on the above info, is there any kind of timescale I should use in starting to look at re - mortgaging with reference to the 'Default' accounts dropping of our credit reports? - They should have all gone by December, but do we need to wait any longer before starting to look at new mortgages?

As always, thank you for taking the time to read this - and thank you in advance for any advice!

cmssbrie

Anyone any advice to share?

Thrugelmir

Leaving the unsecured loan behind so to speak will be an expensive option. Rising to around the 12% level.

Is your mortgage currently interest only? If so how do plan to repay the capital. Your new mortgage will most likely have to be taken out on a repayment basis. Which will result in an increase in monthly outgoings.

Which leads me on to ask. Can you afford to make overpayments to reduce your current debt, i.e. pay more money against the unsecured loan element. As this will increase the equity available when you come to move properties.

I haven't ignored your credit history issues. These will resolve themselves over time. Getting yourselves financially sorted ideally should be your first objective.

Annisele

I'm a bit confused. Do you want to remortgage (i.e. take out a new mortgage on your existing property), or do you want to sell your current house and take out a brand new mortgage on new house?

If you're selling your house, then yes you could use the equity towards your deposit. If you're not selling, and you really are talking about a remortgage (and you're keeping your current house) then you can't.

Have Northern Rock said what will happen to the interest rate on the loan if you move house? I think with some of NR's products, the interest rate on the unsecured loan rockets if you pay off your NR mortgage.

As to whether you'd get a mortgage at all - hard to say more than "maybe". You're asking what lending criteria will be in a year, and that's very difficult to guess.

cmssbrie

Thanks guys for your replies!

Sorry - we are looking to move, so yes, we would be getting a brand new mortgage.

NR said that the interest rate on the loan only would go up to 11% I think - which would cost just over £100 a month - which we could easily afford of we stuck with that + a new mortgage of say £650 / £700 per month.

Our current deal is re - payment - and we make an over payment on that each month of just over £200 - but that is split over the unsecured loan and the actual mortgage.

I guess its a waiting game for us until the credit files are clear. If all of the defaults come off the reports in December this year, would we be ok to start looking at / applying for mortgages from January on-wards? - or should we wait longer? - obviously we will check with the CRA's that the defaults have been removed, but is there any kind of 'rule' with how long after they have dropped off the report that you should wait before applying for credit?

Annisele

The £100 a month payments on the loan will reduce the amount you can borrow - possibly by more than the outstanding loan of £10k. You should speak to a broker nearer the time, but you might be better off using your equity to repay the unsecured loan rather than putting it all towards the deposit.

Roughly how much are you looking to spend on the new house?

Thrugelmir

If you can afford to wait a little longer. Then remortgaging the unsecured loan into the new mortgage would make financial sense. Interest rates will be rising in the not too distant future.

cmssbrie

Thanks guys!

We're looking at spending around 130K - assuming we kept the loan, that would mean a deposit of around 15K - which our equity should provide, if we paid off the loan from the sale, it would wipe out a deposit (bar 5K).

Probably a stupid question, but would a new lender take on a mortgage, and the loan at the same time? - or would they insist on combining both of them?