Sell house to rebuild credit file?? Will it work?

deanogtv

Looking for some advice and with a forward plan I have and whether it will be the most efficient way of helping me and my wife getting our own mortgage and onto the housing ladder on our own.
We currently have a property with circa £140k equity tied up in it.
The property’s mortgage is in my parents’ name as at the time we could and still can’t get a mortgage due to poor history.
The wife has around £15k on credit and no ccjs or defaults.
I have around £2k on credit and 2 defaults but no ccjs.
Between us our credit files are pretty poor as you can guess.
The plan is to sell our house which will release the equity, and rent for 12-18ths while we rebuild our credit files. We will both pay off all ours debts, reduce what’s on credit to zero and put the remaining circa £100k in savings and ISAs for 12-18months. We hope to be able to rebuild our credit files enough to solely get a mortgage in 18 months’ time with rebuilt files and £100k deposit.

My question is, would this first be enough to re-build our credit files and secondly, would this be the most efficient way of doing it??

All comments welcome.

HappyMJ

deanogtv wrote: »

Looking for some advice and with a forward plan I have and whether it will be the most efficient way of helping me and my wife getting our own mortgage and onto the housing ladder on our own.
We currently have a property with circa £140k equity tied up in it.
The property’s mortgage is in my parents’ name as at the time we could and still can’t get a mortgage due to poor history.
The wife has around £15k on credit and no ccjs or defaults.
I have around £2k on credit and 2 defaults but no ccjs.
Between us our credit files are pretty poor as you can guess.
The plan is to sell our house which will release the equity, and rent for 12-18ths while we rebuild our credit files. We will both pay off all ours debts, reduce what’s on credit to zero and put the remaining circa £100k in savings and ISAs for 12-18months. We hope to be able to rebuild our credit files enough to solely get a mortgage in 18 months’ time with rebuilt files and £100k deposit.

My question is, would this first be enough to re-build our credit files and secondly, would this be the most efficient way of doing it??

All comments welcome.

It will take longer than 12 months to repair your credit history.

It will 6 years from the last default and about 2 years from the last late payment to clean your credit history sufficiently to get a good rate on a mortgage.

You've got some good equity there. Spread between you and put into some regular savers and high interest current accounts you could be earning some decent rates of interest all free of tax. £100,000 will earn at least 3% interest. Whilst it's not enough to cover the rent in full you would have had mortgage payments, buildings insurance, boiler maintenance and property maintenance to pay out. When you're renting the only expenses you have is rent as the landlord pays all of those expenses.

ISA's pay rubbish interest ignore them for the moment. Regular savers and current accounts pay more and they're tax free too (from April).

I would sell up and rent something just big enough for your needs. Nothing too fancy just enough. Not too small and certainly not too big. If you don't like the property it's very easy and cheap to move on. I would think about buying again in 6 years time when hopefully you would have saved more money.

DCFC79

Its ok saying sell the house to pay off the debts have you learnt your lesson re credit eg don't spend what you cant afford.

Thrugelmir

Do your parents own another property?

Would there be a capital gain if the property was sold?

Have your parents been declaring the "rental income" ? Paying the mortgage is technically rent.

solentsusie

deanogtv wrote: »

Looking for some advice and with a forward plan I have and whether it will be the most efficient way of helping me and my wife getting our own mortgage and onto the housing ladder on our own.
We currently have a property with circa £140k equity tied up in it.
The property’s mortgage is in my parents’ name as at the time we could and still can’t get a mortgage due to poor history.
The wife has around £15k on credit and no ccjs or defaults.
I have around £2k on credit and 2 defaults but no ccjs.
Between us our credit files are pretty poor as you can guess.
The plan is to sell our house which will release the equity, and rent for 12-18ths while we rebuild our credit files. We will both pay off all ours debts, reduce what’s on credit to zero and put the remaining circa £100k in savings and ISAs for 12-18months. We hope to be able to rebuild our credit files enough to solely get a mortgage in 18 months’ time with rebuilt files and £100k deposit.

My question is, would this first be enough to re-build our credit files and secondly, would this be the most efficient way of doing it??

All comments welcome.

Firstly I hope that you are taking absolutely no notice of the credit scores the agencies give you and are basing your assumptions on the factual information that is contained in your report, not the made up numbers that get sold to people.


Wife has £15K on credit with no CCJ's or defaults - why would you automatically assume that this means she has a poor credit rating? What is the £15K debt for? Is it credit card debt? Is it a car loan? Is she maxing out her credit limits on her credit cards and struggling financially? Or is she only using 50% of her available credit limits? Does she have lots of late payment markers? What is the reason her score is poor?


You have 2K on credit with 2 defaults and no CCJ's. What are the CCJ's for? And most crucially how old are they? Are they going to drop off your file imminently or are they recent, so will it be another 5 years?? Perhaps give a bit more information. Why do you believe that you will be in a better position in 12-18 months to get a mortgage, will the defaults have disappeared by then?


You say there is circa £140K equity. How big is the mortgage? How much are you paying per month? Is renting going to be substantially cheaper or much more expensive? Have you looked at the rental market in your area? Have you budgeted in the costs of renting (and stress) of moving and deposits etc.?


How much is your income in relation to your debts? If you put your mind to it could you pay the debts off within 12-18 months without selling up? Would the interest you receive on the funds in savings offset what you would be paying in rent or interest payments on the debts?


You say that you will have at least £100K to put towards a new home. How much are you looking to pay for a new house? Depending on the ratio of deposit to the mortgage you will require the 2 defaults may not make much of an impact, particularly if you are up to date on all other payments and don't have lots of recent late payment markers on your credit files. The bigger the deposit the less of a risk a lender will see you as. Make sure you use a good broker rather than going to a high street bank if you have anything at all detrimental on your credit file as they will be able to find you the best deal. Perhaps go along and have a chat to one before you make a decision on anything and see what they might be able to do for you?


My friend had a number of defaults but as she had a £90K deposit, and the defaults were over 3 years old, she got a mortgage through a broker pretty easily. Once you have a mortgage in your own names and ensure that you keep all your payments - for everything! - up to date and have learnt your lesson with your other borrowings you should have no problem in the future. If you initially have to get a mortgage with a slightly higher interest rate it should not be too hard to re-mortgage in a few years to a more competitive one when you have built up even better credit reports.


The key with your credit record is longevity. The longer ago any problems were the less impact they will have, and after 6 years they will drop off your file anyway. Keeping your payments up to date and ensuring that you have no late payment markers is essential, and continually just making minimum payments on your credit card can make it look like you are struggling.


I'm afraid that without a financial statement of your income and outgoings it is difficult to say what would be best for you to do. But good luck in whatever you decide.

On_my_way

I would say the same - why sell up? As you've got good equity you should try to find other ways to pay back the money that you both owe. Paying rent to someone else is a waste of money.

Dandytf

I agree with those who advise do NOT sell.

If you are working and have a home to return to after work, then no reason to sell.

I'm 3 yrs into 7 yrs sc dmp -whilst making overpayments to my mortgage.

Selling you home to build credit rating doesn't make sense at all t.b.h.

Budgeting is a late lesson in life for me, I did consider selling 2012 -then I thought why if i've been working full time for 25+ years.