Best way to go about getting mortgage with bad credit

PoloPonyHampshire

Good Morning all,

Apologies but slightly long post, but here goes.

I am currently going through a divorce and hope to receive around £150,00 - £200,000 in my settlement. I would like to see if I could get a 50% mortgage to buy my first home. I am 47 and work self employed.

Now I also have £62,000 debt in default. This is made up of £51,000 credit card debt and £11,000 overdraft.

These debts are in my name and were debts run up during my 22 year marriage, mostly by my ex husband. They have not been serviced for 4 years now and are just sitting on my credit account.

We are trying to get him to accept at least 50% liability in the divorce but we have no guarantees of that as he used my card and not a card in his name on my account.

These debts are all in default and with debt collection agencies, and they have placed the accounts on hold until we can sort things in the divorce.

My current credit score in around 473 and I have a couple of small current credit cards which are up to date.

What I would like to ask is would it be better to offer settlement figures and pay off the old debts before applying for a mortgage or sort the mortgage first then deal with the old debts ?

I am aware I have no garruntees of getting a mortgage either way but would like to think there will be someone who would lend me the £150,000 to buy my first home.

I would appreciate your advice on this, thank you

[Deleted User]

I'd have thought you'd have zero chance of a mortgage with that level of unsettled defaulted debt.

ACG

Oddly, assuming the defaults are all 2-3 years old (ie they went into arrears 4 years ago but took a few months to default) you would be looking at rates of around 2.5% with that sort of deposit.

The issue is that these defaults are quite large and any of the creditors would no doubt consider making you bankrupt at that sort of value especially if they know you have a property with £150-200k equity in it.

I think you are going to either need to settle the debts (fully or an agreed amount) which will hit your deposit but even with a 25% deposit you should have decent(ish) rates available to you or set up a payment plan - but this will affect affordability for many many years, which may not be a problem depending on your income and the size of the mortgage etc.

It is probably worth getting your reports and talking it through with a broker in detail so you can plan what is best for you rather than the debt collection agencies.

PoloPonyHampshire

Thank you ACG, I have explained to the lenders that I awaiting a settlement amount and will then come back to them to arrange settlement figures and as they are all over 4 years old they seem happy to wait. Not one of them has mentioned Bankruptcy but as I left the family home due to Domestic Abuse and am on my own with 3 children I think they are just being sensitive to my situation.

Also the family home is not in my name but as we were married for 11 years and have 3 children together the family home will be sold and the equity divided. I moved out and have rented privately for the last 4 years whilst he has stayed in the marital home.

I have been to Stepchange who advised I filed for Bankruptcy but as a Director of a small company for me that was not an option.

I think based on your reply it might be best to tackle the debt first, then reassess where I am once that is done.

Thank you

ACG

They are probably being sensitive and by the sound of it you are also communicating with them which will go a long way to build a sort of working relationship. Its a rubbish situation, but it happens and they will have people actively avoiding them, burying their head in the sand so to be able to talk about it and discuss a way forward probably makes everything tons easier for them.

The debt in itself can be overcome all day long, if we were talking a couple of grand split between companies, I would probably say crack on as its unlikely you would have the threat of bankruptcy hanging over you but due to the amounts involved I think it makes sense to sort it out - either a DMP (although I would avoid that if possible), a payment plan with the companies or a settlement.

It is difficult to say which is best without knowing more, but I would guess it would be a settlement figure as you will still have decent rates available to you providing your deposit stays above 25%.

PoloPonyHampshire

ACG again thank you for your response. The debts are split between 11 lenders so no huge amounts, and yes they are all being sensitive to my situation thankfully. I am trying my best to update them and we finally after 9 months of my ex stalling have a court date of April the 6th for the final settlement hearing for the divorce. I will wait until then to see where I am at as clearing these debts are paramount.

I just feel paying a mortgage would be far preferable to paying rent so will keep fingers crossed I can find a way to move past this :-)

Again thank you

PoloPonyHampshire

ACG I think offering a settlement figure for me is preferable to a payment plan but I also read that this can be more harmful to your Credit Score than, for example an IVA ? Is that so ?

Exodi

Just to mention, you asked about the possibility of borrowing ~£150,000 at 50% LTV but didn't mention your income. Being self employed, they will require 1-3 years of accounts and expect you to be earning at a minimum £30k - £35k gross per year.

Naturally it doesn't matter what the lenders think about your situation if you don't meet their affordability criteria.

ACG

An IVA is a form of bankruptcy. That would be the worst of the worst as you then have 3-4 years defaults and insolvency to try and overcome.

A DMP would be slightly better but not much.

With these defaults being so old, a settlement figure is probably the best option on the face of it. By the time a new mortgage deal finishes in 2 years or so, the defaults will have all but dropped off your credit report anyway. A payment plan gives you more deposit but adds to your commitments.

You need to sit down and discuss affordabiltiy and rates with someone before deciding on the best course really.