Currently no chance of getting a mortgage but how to plan for the future?

runlululurun

My partner and I are currently renting but aiming to buy our own house in the future.

He was made redundant in 2011 and a period of unemployment had serious consequences for our personal finances and he ended up defaulting on 2 personal loans of high value (one approx £9k and one approx £5k) and has been on a DMP since then.

The last year has seen a considerable improvement in circumstances and he has had a significant promotion at work which means his salary is approx £100k. We are still renting but need to work towards buying a property, what should be our priorities with regards to paying off debts - there are other creditors in addition to the two defaults.

Should we be prioritising paying off the defaulted debts? We are unlikely to apply for a mortgage until after they have dropped of his credit file because we also need to save for a deposit. If six years have passed since the default, does it matter if they are still unsettled?

Georgiecoh

runlululurun wrote: »

My partner and I are currently renting but aiming to buy our own house in the future.

He was made redundant in 2011 and a period of unemployment had serious consequences for our personal finances and he ended up defaulting on 2 personal loans of high value (one approx £9k and one approx £5k) and has been on a DMP since then.

The last year has seen a considerable improvement in circumstances and he has had a significant promotion at work which means his salary is approx £100k. We are still renting but need to work towards buying a property, what should be our priorities with regards to paying off debts - there are other creditors in addition to the two defaults.

Should we be prioritising paying off the defaulted debts? We are unlikely to apply for a mortgage until after they have dropped of his credit file because we also need to save for a deposit. If six years have passed since the default, does it matter if they are still unsettled?

I believe that they drop off 6 years from the date they were entered onto your credit file. - regardless of whether they are settled or not.

csgohan4

Your best plan of action is to make your credit file as squeaky clean as possible and ensure you are a customer lenders won't hesitate to lend to.


Clearing debts is important as you will be asked these and will reduce the amount you can borrow and make you less desirable for lenders.


Then will come the deposit. Try not to have too much finance such as car loans and personal loans prior to applying for the mortgage.


Aim to save a set amount every month, there is also the Help to buy ISA which the government chips in every month up to a maximum of 3000 pounds. Maximum you put in there a month is 200 pounds though.


20% seems to be decent figure for a deposit wise for the best interest rates. But of course you can do with just 5% and you could use the government equity loans and Help to buy schemes.


However the consensus on here seems to be to avoid them as they have restrictions and you will end up paying more in the long run

ACG

If you want to do it now with the DMP in place - there could be ways to get it through... one for a broker definitely though.

runlululurun

Thanks - I think doing it now would be out of the question as no real deposit and also because of the defaults more than the DMP. He's in a position to come off the DMP now and probably will do when it's reviewed in June.

If the defaults drop off his credit file after six years even if there is still debt outstanding, then maybe it would be better to concentrate on saving up a deposit rather than paying them off?

I don't think we'd be eligible for any of the help to buy schemes as my understanding is they all require good credit scores? Is that correct?


I realise clearing debts and saving for a deposit are both important but obviously we can only direct the extra money in one direction and want to maximise it!
Many thanks for your help.

andyfromotley

1. Pay your debts. Why would you consider not doing so if you have the money?
2. Save for a deposit

On 100k you should have a nice hefty deposit by the time your credit history is back to looking great.

ClimbingOutOfDebt

runlululurun wrote: »

I don't think we'd be eligible for any of the help to buy schemes as my understanding is they all require good credit scores? Is that correct?

Not sure if it's the same with full ownership, but I have just been accepted on a shared ownership HTB scheme with (a lot) less than brilliant credit. Still no guarantees of getting a mortgage of course :-/

Good luck with the credit file cleaning and deposit saving. In the same boat.

runlululurun

1. Pay your debts. Why would you consider not doing so if you have the money?


Because we are wasting so much money renting. It might be better to save hard for a deposit, buy a house while paying minimal amounts off debts. Then concentrate on paying debts off once there is a permanent roof in place.

With a bit of luck/sound buying could also remortgage after a period of time and use that money to pay of debts.

The alternative is to spend several years paying off debts while chucking money away on rent and then spend several more years saving for a deposit and in the extra time that takes house prices have potentially moved further out of reach. Agree the extra salary opens up options that I thought were completely out of reach and want to make sure we make the most of it, to hopefully change our lives and financial circumstances for the better.

Purplesky_2

If he is on a 100k salary, I am slightly confused as to why you think you can't afford to throw some as savings and some at debt?

You may want to consider an SOA : https://www.stoozing.com/calculator/soa.php
And then post it up for us for us to critique. There may be hidden areas of savings you can make that make paying own debt/saving for a house that much easier. If you don't want to post it, it forces you to really look at what you're spending.

runlululurun

Well we can do both, but say we have an extra £1000 per month spare, debts are about £35k and we would need a deposit of say £50k. To save deposit and clear debts would take 7 years.. actually, that's not including interest on the debt so much much longer.

I am trying to work out if it is more efficient to pay a lesser amount off debts and concentrate on saving for a deposit? Or concentrate on paying off the defaulted debt (we are unlikely to have saved a deposit by the time the defaults drop off). Will they count against us if they are unsettled past the 6 years?

Is it better to try and clean up the credit situation and worry less about the deposit and then try and borrow a deposit once the defaults have dropped off?

My partner is 50 so time is of the essence to get the situation sorted out and into a stronger financial situation so I want to use the extra money in the most effective way possible.

runlululurun

Thankyou for that link purplesky I've done similar excercises in the past, though we haven't done it since the increased salary (1 month ago)

Incase you are wondering how he managed to be in this financial situation with such a good salary (which seems to be implied by your post above)

1. The recent pay increase doubled his salary (1 month ago)
2. We spend >£2100 per month on childcare/travel to work/CSA
3. He was unemployed for a period of 6 months in 2011 which is when the proverbial hit the fan with regards to credit, prior to that he earnt approx 1 third of current salary.

I don't entirely feel I should need to explain that but I don't doubt that some people will judge.

And in fairness, has also changed spending habits. Be completely, feeling-sick-and-sleepless-nights-skint tends to teach you a lesson like that!