mortgages and bad credit

question_time_2

Hi everyone,

First time poster, long time reader! I have a scenario that I would be very grateful for your opinions on.

The Background

I’m 29 years old and have recently started to consider the prospect of applying for mortgage with my fiancee. We have been living largely rent-free for the past five years in an apartment owned by my fiancees parents. As they are coming up to retirement, they have made the decision to gift ownership of the apartment to the two of us. The apartment is worth approximately £100k, and we have decided to explore the option of selling the property and using its value as a deposit for our first mortgage.

The Problem

My credit history is plagued by two large defaults that resulted from a combination of bad luck and my own irresponsibility when I was a student. In 2008 I was made redundant from my first job. I had an £8k car loan and a £2k overdraft that I subsequently defaulted on during the difficult months that followed. As a foolish 23 year old, I buried my head in the sand hoped the problem would go away. That was seven years ago.

In the case of the £2k overdraft, I changed banks shortly afterwards and started fresh. I never acknowledged the debt and avoided all chase calls and legal letters. The odd letter arrived at my parents’ house sporadically, but I have never opened them or engaged with the multitude of firms the debt has been sold to. The default is listed on my Experian report as early 2009.

In the case of the £8k car loan, I avoided the firms that the debt was sold to until in 2010 one of them finally caught up to me. I entered into a monthly payment plan with them and stuck to it. They took payments off me for roughly eight months and then mysteriously stopped. It took me two months to realise, and rather than look a gift horse in the mouth I decided to once again ignore it. l haven’t heard from them or anyone else regarding the debt in four years. No letters or phone calls. The default is listed on my Experian report as early 2009, however I acknowledged the debt late in 2010.

I am concerned about how my chequered financial history will impact on a mortgage application. Despite those two black marks, my money management is not really that bad. I live within my means and my credit rating with Experian is above average. I have a long list of unblemished credit transactions including long-term mobile phone contracts and gym memberships. I earn £20k a year and my partner earns £14k (she is studying law part time).

My Question(s)

In preparation for applying for a mortgage (and bearing in mind we have a £100k deposit):

Should I apply to Experian and the other credit bureau’s to remove the debts from my credit history, or should I contact both lenders and initiate a repayment plan? Will this improve my chances of getting a mortgage if the defaults are removed from my credit history? Is it worth re-paying the debts considering the amount of time that has elapsed and the fact that I rarely get chased for it anymore?

What are my options with the £8k loan that I ‘did’ acknowledge in 2010 before the lender ceased collecting the repayments?

Thanks everyone!

Tixy

Hi

The credit reference agencies will not just remove the entries from your credit file.

Even if you repay the debts in full now the creditors will not remove the defaults from your credit file.

The risk you are taking with both is that one of the creditors may decide to take court action against you.
The overdraft they probably have until early 2015 to commence court action.
The loan they will have until late 2016 to commence court action.

If either successfully take court action then you would end up with a CCJ. If you are in a position to repay a CCJ in full within a month of the judgement date then it won't appear on your credit file. If you are not in a position to pay within a month then the CCJ will be on your credit file for 6years from the judgement date.

If you have savings sufficient to cover a potential CCJ then you should therefore be able to avoid it going on your credit file.
If both defaults are dated early 2009 then they will drop off your credit file 6years after this, i.e. early 2015. Your best option may well be to wait until that happens before applying for a mortgage.

question_time_2

Hi Tixy,

Thanks for your response. Really appreciated.

Based on what you've said I believe I'm looking at two separate issues:

1. The date(s) in which the defaults will drop off my credit report - allowing me to apply for a mortgage without the debts having a negative impact on the application.

2. The date(s) in which the debts become statute barred and uncollectable from the lenders perspective.

With regards to the 2nd issue, I'm not too concerned about collection activity at the moment. I take your point about the potential for a CCJ, however I have experienced no collection activity from either in the past 24 months, and it was sporadic before that. My hope in this respect is that I can ride it out until I can claim statue of limitations as a defense should they ever decide to re-pursue the debt(s).

The 1st issue is more pertinent to my situation at the moment. My priority is to make a successful application for a mortgage. I'm in agreement with you I think in your conclusion - waiting until early 2015 when the debt drops off my credit report. Just clarify a point though:

Tixy wrote: »

The credit reference agencies will not just remove the entries from your credit file.

I realise they're not going to do it before hand. I was intending to write to them literally on the anniversary of the "six years since default date" (early 2015). My concern is they will take their sweet time in removing it following the anniversary date, and I want to go ahead with a mortgage application in Spring 2015 ideally.

Thanks again and all the best!

Thrugelmir

Which bank did you default on?

Tixy

question_time wrote: »

Hi Tixy,
1. The date(s) in which the defaults will drop off my credit report - allowing me to apply for a mortgage without the debts having a negative impact on the application.

You should still declare the debts exist on a mortgage application. But a potential lender would not see them on your credit file after they have dropped off.

With regards to the 2nd issue, I'm not too concerned about collection activity at the moment. I take your point about the potential for a CCJ, however I have experienced no collection activity from either in the past 24 months,

It is quite common for debt collection activity to restart just prior to debts becoming statute barred.
Also if this is the first time you have checked your credit files in a while then it is possible that this can trigger debt collectors to start chasing again (as you have confirmed your current address).

I realise they're not going to do it before hand. I was intending to write to them literally on the anniversary of the "six years since default date" (early 2015). My concern is they will take their sweet time in removing it following the anniversary date, and I want to go ahead with a mortgage application in Spring 2015 ideally.

The defaults/accounts will automatically disappear. On experian and callcredit it will be to the date. Equifax sometimes can be a week or so later.

BeenThroughItAll

You've been living rent-free for five years, but the only source of deposit you have is from selling a flat you're being given, and you owe ten grand?


What have the two of you been doing with your 34K a year?

SootyUK

If I was you I would use the deposit that you were going to get a mortgage with to clear your debts and put buying a property on hold.

If you get a successful mortgage and end up owning a property and then get taken to court and have a CCJ they can force you bankrupt. If they get a cost certificate they can force you to sell your house, as you will have little equity in your property the only option you will have is bankruptcy... That's in an extreme case not saying that this would happen, it's just a risk