Getting a mortgage with previous personal loan default

martinmcfly

My partner and I are in the process of inquiring about mortgages. We are both employed full time with excellent credit ratings and a £15,000 deposit. However I previously defaulted on a personal loan when I was younger and more naive than I am today. It was a £10,000 loan from First Direct, I missed a £100 payment, and it went to a credit services company in 2007. That same year I set up an agreement with the credit services company, they have frozen the interest and I currently pay back £1 a month. There is approx. £8000 left to pay.

My bank (co-op) and my partner's bank (Barclay's) have both refused to offer us a mortgage because of the default. I have been advised by one Independent Financial Adviser that the best thing would be to pay off the debt ASAP, however this will be a huge knock to our deposit.

Another IFA has said that because the default is over 6 years old there are plenty of High Street lenders that will still consider giving us a mortgage, and we've had a 'Decision in Principle' from a Mortgage Adviser that is aware of this default.

Our concern is because we are looking to buy a cheap rundown property from private funds to then remortgage when it is habitable. We don't want to fork out the cash to then find out we can't mortgage the property because of my previous mistake.

Is this something anyone has had any experience with or can shed some light on?
Many thanks in advance.

lee111s

Can I ask why you have applied to the banks without going through the mortgage advisor? If he knows where will accept you, or where you have the best chance of being accepted, why didn't you apply there?


Seems a little odd.


Can I ask why you are only paying back £1 a month? Do you really want that debt hanging over you for the rest of your life?


It's probably going to be best to pay off the outstanding balance and then save the deposit again and look to buy when you have enough.

daisyfrau

What value property are you looking to buy, and are you looking for a mortgage, or to buy in cash from 'private funds' as you state?

If you're getting a mortgage absolutely pay off your debt first, I would say, although it's great the interest on it is frozen. I can't actually believe you only have to pay off £1 a month, are they seriously expecting you to live another 667 years.

Is this a windup??

Dave_Ham

I think you will see a fair few posts about getting a reality check on your situation, based upon the current detail.

Not repaying a loan and entering into a farcically low £1 a month repayment post default is obviously going to have a significant effect on your credit profile.

You've seen a broker who has achieved a Decision In Principle, so surely they have given you an opinion on your project?

You are unlikely to be able to remortgage within 6 months with some lender and 12 months with others, hope someone has told you this.

martinmcfly

"Can I ask why you have applied to the banks without going through the mortgage advisor?"

I've spoken to mine & my partner's banks, initially to get an idea of what position we may be in. I have also spoken to 2 financial advisers. One has said.. "Paying the £1 per month off the debt doesn't show significant effort to clear the balance in the eyes of a lender. If you were to clear it then doors will open again... " & " the re-mortgage (which is the exit strategy to the bridge) would be impossible with the current position. " and another that has had a Decision in Principle from a High Street Lender based upon the fact that the default occurred over 6 years ago. (This is a different adviser to the Decision in Principle mentioned in the OP)

"Can I ask why you are only paying back £1 a month? Do you really want that debt hanging over you for the rest of your life?"
At the time, in 2007, £1 was all I could afford. Now, as it is not accumulating any interest it has not been beneficial to pay it off, rather it's been better for me to pay off other debts (student loan etc.) and save.

"It's probably going to be best to pay off the outstanding balance and then save the deposit again and look to buy when you have enough."
We'd rather not wait to re-save the money, if we can possible avoid it.

martinmcfly

"What value property are you looking to buy, and are you looking for a mortgage, or to buy in cash from 'private funds' as you state?"

The property is coming to auction with a guide of £50,000. It is not currently 'habitable' so not currently 'mortgagable' therefore we are looking to buy it with our own money, make it 'habitable' and remortgage it.

"are they seriously expecting you to live another 667 years.

Is this a windup??"
I have a letter stating my final payment will be in 2773. F'real!

lovehackney

Look at it from the bank's perspective - you haven't "saved" £15,000 at all. You've borrowed £10,000 for a personal loan that you haven't paid back. At best you've "saved" £5,000 - and even then, not really because that doesn't take into account interest on the loan.

Thrugelmir

martinmcfly wrote: »

"Can I ask why you are only paying back £1 a month? Do you really want that debt hanging over you for the rest of your life?"
At the time, in 2007, £1 was all I could afford. Now, as it is not accumulating any interest it has not been beneficial to pay it off, rather it's been better for me to pay off other debts (student loan etc.) and save.

From any lenders perspective why would they wish to conduct business with you? Do you seriously believe that money will be advanced while you still haven't repaid other debt in a timely fashion.

Said in a polite manner. Please take your head out of the clouds. You are merely self inflicting huge damage upon your own reputation. The longer you play games. The longer you'll wait.

audigex

Get rid of the debt. It really is that simple: no lender will touch you with anything resembling a sensible rate otherwise.

martinmcfly

Why then am I able to get more than one positive 'Decision in Principle'?

Is it something that will be dug into more deeply later?

lee111s

The DIP is not a guarantee. It's a brief overview that shows you could lend X amount IF everything else is in order and there's nothing that would make us think twice about lending you some money... you know, things life defaulted and unpaid debts.


I'm afraid you'll struggle with this one. At least one of the above posts are from what I get the impression of, an experienced mortgage advisor.