Mortgage and defaults!

Renshy

Hi,

Hope someone can help me.

Me and my partner are looking at the possibility of getting a mortgage in the next 3 or 4 years. We had a very bad time last year and as a result have defaulted on a lot of debts such as payday loans and mobile phones. The total is around 20 defaults between us and around £20,000. (We were in a very bad place + personal issues!)

I know this is terrible but is fixable. Our financial situation is much much better now and we're both on a combined income of around £60,000. We're in a position to pay debts off now but are wondering what the best way to go around this is. Would it be better to pay as much as we can off as quickly as we can to clear the defaults, or, pay a reasonable amount and save for a deposit. I've been reading online and see that after 3 years some lenders through brokers will not really look at the defaults as long as no further defaults / late payments have been applied recently. So making reasonable payments but saving as much as possible for 3 years is a better option than paying the defaults off?

I know defaults will be removed in 6 years. Applying for a mortgage with a greater deposit (Possibly 80% LTV) but still having defaults (payments in place) vs applying for a mortgage with 'satisfied' closed defaults with a low deposit (95% LTV)... or realistically with the amount of defaults do we just stop thinking of the possibility for at least 6 years and pay them off over that period?

I understand that with that amount of defaults I wouldn't be looking at the most reputable mortgage lenders..

markbmcfc

First of all, don't panic. It will take time to fix your situation but as you say, it is fixable.

I've been where you are and i'm currently at a place where I can just about get a solution that gets me a mortgage, but with an adverse lender like Precise or Aldermore. My defaults are 3 and 5 years old, but there's only two of them, and the history since then is perfect.

I'm afraid to say if you have 20 defaults at the same/similar time, you're not going to get a mortgage in three years. A few defaults would just about get you through acceptance, but it's highly unlikely you'll be approved with 20 and that's likely to be the case until they drop off after 6 years. If the defaults are staggered over time and in say, three years you only have four left for example, you might get through, but not 20.

You now need to focus on two things, credit rebuild and savings. Firstly, a settled default is better than an active one, but not by much to be honest. See if you can negotiate partial settlement on your debts, though, partially satisfied are looked at less fondly than full settlements. Try and get a credit rebuild credit card, even if its a horrendous rate, and just stick a tank of fuel on it each month and pay it off in full every month. Keep that card for the next 5 years and repeat the exercise, demonstrating an ability to maintain credit.

In the meantime, save save save. Once your defaults drop off, if you've got a big chunk of savings, you will get a better rate, with a lower LTV and maybe even a bigger/better house than you think you can get at this stage. It will be absolutely worth it in the end.

Be positive and look forward to being clear of your past in year 6, with a nice healthy deposit and a promising future.