First Time Buyers & Refused A Mortgage

LEK

Good morning all,

I'm just looking for a bit of advice regarding a recent development that has arisen. Basically me and my other half are currently looking to buy, with the help of the Help To Buy Scheme. We both currently privately rent together, I'm 27 and she's 25.

However, just to give a bit of insight into my credit history - it's not the prettiest to say the least. Last year I had to enter into a DMP (StepChange) due to financial difficulties which involved a couple of loans (Hitachi Finance, with a current balance of 14K & Barclays, with a current balance of 3.5K and I pay StepChange £250 a month in total). Since then though I have stabilized financially with the help of the DMP but at the cost of my credit history taking a big hit and Barclays labeling the debt as a default due to breaking the loan agreement as in a way expected. In hindsight though mistakes were made and big lessons were learned.

The only thing that is slightly improving my credit history as time goes on is the regular monthly phone contract and my Halifax Credit Card (£2750 credit limit which I hardly use but always pay on time when I do).

My other half's credit history however, is squeaky clean. My annual salary is £21K and hers is just over £16K.

She knows about my bad financial past and we did speak about this during the discussion stages of looking into a mortgage and the fact that we may be turned down outright due to this, though we decided to speak to an adviser anyway after viewing a brand new build a few days ago (£185K list price, 5% deposit, 75% own & 25% rent). The adviser said that the usual lenders i.e. banks may well turn us down outright due to my credit history but there was still hope at the time of a broker maybe approving us (Mainly those who specialize with people who are on DMP's) so we went ahead with them doing the searches. A few phones calls later spread across a couple of days and unfortunately we were turned down by the everyone, mainly citing the default I currently have with Barclays.

The only other thing the adviser could suggest is that they take my name off the application and put someone else i.e. a family member on the application complete with my other half to see if it gets approved, and then change part of the ownership back over to me after the sale has gone through... but both me and my other half are not keen on this idea.

Basically we are now looking to see what other options we have, that's if we have any at all. My other half suggested trying to obtain the mortgage on her own but as per the above, she does not earn enough.

Many thanks for taking the time to read my post,

Liam.

MortgageMamma

"The only other thing the adviser could suggest is that they take my name off the application and put someone else i.e. a family member on the application complete with my other half to see if it gets approved, and then change part of the ownership back over to me after the sale has gone through... but both me and my other half are not keen on this idea".


That in my opinion is really bad advice and the sound of a desperate salesperson. You would still have to be fully assessed further down the line to go on the mortgage, and it would have to be significantly further down the line. Where does that leave you if you and your partner decide to split at some point?


You don't say how long your DMP has to run? You could make a bit dent into your debt by using your house deposit to pay off the debt then apply for a mortgage once you are debt free, out of the DMP.

LEK

That in my opinion is really bad advice and the sound of a desperate salesperson. You would still have to be fully assessed further down the line to go on the mortgage, and it would have to be significantly further down the line. Where does that leave you if you and your partner decide to split at some point?


You don't say how long your DMP has to run? You could make a bit dent into your debt by using your house deposit to pay off the debt then apply for a mortgage once you are debt free, out of the DMP.

Those were my exact thoughts as well, hence why me and my partner are not keen on the idea - as to me it also seems a bit of a desperate sales tactic.

With regards to my DMP, it due to complete at the start of 2022 so a good few years yet due to only being in it for a year. We were also considering the idea of paying off my debt so that I would be debt free but something that still springs to mind after some research is that even if I am debt free, I have still got that default listed on my credit file and will do for the next 6 years until it clears if I am not mistaken?

Many thanks for your reply - Liam.

ACG

Help to Buy and bad credit is not a great mix. One of the help to buy schemes specifically excludes anything more than a "2" on your credit report in the last 2 years, I think thats HTB Mortgage guarantee/HTB 2.

HTB EL I do not think has the same stipulation but it is only available on new builds.

If it is a non new build I think your chances of getting a HTB Mortgage are less than slim and by doing anymore credit checks you are doing more harm than good.

My job is to advise on mortgages, not morals. So on that front, I would say keep the money held back and put it towards boosting your deposit. If you can get to 15% most adverse can be overcome.

MortgageMamma

Hi Liam


If you choose the route of paying off your DMP yes you will have the default. But if the default is showing as paid/satisfied you will have more chance of success and even furhter down the line from when the default was put on your file you will have a larger selection of lenders to choose from. You could also wait until its come off your file at around the same time as your DMP finishes. I appreciate its quite far in the future but its just an option.

If you choose to continue looking for a mortgage I feel you will need a much bigger deposit, I doubt you'd be able to use the help to buy scheme or equity loan and you would be paying much higher rates.

amnblog

The Broker you have been using sounds like an idiot. The idea to buy with someone else then swap to you later is farcical.


However the changes of you getting accepted on what appears to be a shared ownership scheme (not a Help to Buy Scheme - did you mean to type 20% rent?) are still minimal.


You could speak to a more expert broker on shared ownership mortgages with adverse credit, but even if accepted, you wont like the rates.


If it is a H2B Equity Loan purchase there are adverse lending options out there but your chances of acceptance seem slim with two large defaults amounting to close to a years salary.


A larger deposit (15% +) and standard purchase may open more mortgage options for you.

LEK

Thank you for your replies everyone and the advice, it goes a long way and has been very informative!

It does sound like for me in this case that the best way forward for me and the both of us at the moment to move forward is for me to clear my personal debt completely to remedy my credit file. As already mentioned the Barclays default will still how afterwards, but it will be listed as settled.

At the moment we are still considering our options, but I think the ideal way forward may be to continue renting - especially as if we were to commit to a mortgage through a broker who requires a 15%+ deposit, we would not be able to put this amount down initially.

Many thanks again - Liam.