What happens to your credit rating if you decide not to go ahead with house purchase?

VE

Hi all, 

First post here since I couldn't find any other post about a similar story.
So my question is what happens to your credit rating if you decide not to go ahead with a house purchase if you still haven't exchanged contracts? We have already secured a mortgage, done all the surveys and searches and the solicitors have finished everything on their side. We were literally about to set exchange dates when the lock down started. 
Of course this is related to the current coronavirus situation and how everyone is predicting a housing market devaluation, even if no one is sure by how much. Like many other prospective first time buyers we are quite afraid of going into a situation of negative equity.
Does anyone know what are the potential impacts on our credit rating if we decide to back out at this point? 
I would also like to add that this may sound like a rant from someone in an incredibly fortunate situation - because it is. We never thought we would be able to buy a house. Now in our mid-thirties we finally saved enough to be in this position, and we feel very fortunate to be in this situation, but as you will hopefully understand the fear of entering such a big commitment facing a potential housing market crash and a deep economic recession can make anyone think twice about such a decision and look for more information on what are the available options. 

Many thanks in advance and I hope you are all well in such strange times. 

VE 

eddddy

It will have no effect on your credit rating.

When you applied for a mortgage, your lender would have done a credit search on you, and that will remain in your credit search history. But I believe that's only an issue if your history has lots of searches - because it looks like you're desperate to borrow money.

Obviously, you'll lose the mortgage fees, legal fees, survey fees etc that you've paid out.



Edit to add...

The only thing you might have to contend with is a 'disappointed' estate agent. The EA probably won't get their fee if you back out, so they might put heavy pressure on you to carry on with the purchase (including sob stories about how this will affect the seller).

So be prepared to stand your ground.

[Deleted User]

VE said:

Hi all, 

First post here since I couldn't find any other post about a similar story.
So my question is what happens to your credit rating if you decide not to go ahead with a house purchase if you still haven't exchanged contracts? We have already secured a mortgage, done all the surveys and searches and the solicitors have finished everything on their side. We were literally about to set exchange dates when the lock down started. 
Of course this is related to the current coronavirus situation and how everyone is predicting a housing market devaluation, even if no one is sure by how much. Like many other prospective first time buyers we are quite afraid of going into a situation of negative equity.
Does anyone know what are the potential impacts on our credit rating if we decide to back out at this point? 
I would also like to add that this may sound like a rant from someone in an incredibly fortunate situation - because it is. We never thought we would be able to buy a house. Now in our mid-thirties we finally saved enough to be in this position, and we feel very fortunate to be in this situation, but as you will hopefully understand the fear of entering such a big commitment facing a potential housing market crash and a deep economic recession can make anyone think twice about such a decision and look for more information on what are the available options. 

Many thanks in advance and I hope you are all well in such strange times. 

VE 

It will plummet by 300 points. Not really because there's no such things as universal credit rating.  https://www.moneysavingexpert.com/loans/credit-rating-credit-score/

All that will appear in your credit history is a search for the mortgage product.  It won't have any material impact on your credit history for applying again in the future.

Thrugelmir

VE said:

Hi all, 

First post here since I couldn't find any other post about a similar story.
So my question is what happens to your credit rating if you decide not to go ahead with a house purchase if you still haven't exchanged contracts? We have already secured a mortgage, done all the surveys and searches and the solicitors have finished everything on their side. We were literally about to set exchange dates when the lock down started. 
Of course this is related to the current coronavirus situation and how everyone is predicting a housing market devaluation, even if no one is sure by how much. Like many other prospective first time buyers we are quite afraid of going into a situation of negative equity.
Does anyone know what are the potential impacts on our credit rating if we decide to back out at this point? 
I would also like to add that this may sound like a rant from someone in an incredibly fortunate situation - because it is. We never thought we would be able to buy a house. Now in our mid-thirties we finally saved enough to be in this position, and we feel very fortunate to be in this situation, but as you will hopefully understand the fear of entering such a big commitment facing a potential housing market crash and a deep economic recession can make anyone think twice about such a decision and look for more information on what are the available options. 

Many thanks in advance and I hope you are all well in such strange times. 

VE 

If you buy a property as a home then the value at any point in time is of no consequence. Ultimately when the mortgage is finally settled you can live rent free for the remainder of your lives. The length of the mortgage term, the different rates of interest you'll pay will all be factors as to how much the property ultimately costs to purchase. Being on a repayment mortgage the negative equity should you ever end up in it will naturally disappear.  

AdrianC

VE said:

So my question is what happens to your credit rating if you decide not to go ahead with a house purchase if you still haven't exchanged contracts? We have already secured a mortgage, done all the surveys and searches and the solicitors have finished everything on their side. We were literally about to set exchange dates when the lock down started. 
...
Does anyone know what are the potential impacts on our credit rating if we decide to back out at this point?

Credit ratings are affected by failure to pay things you are legally obliged to pay.
Until you exchange contracts, you are not legally obliged to buy the house. You may be legally obliged to pay bills relating to the purchase - your solicitor, surveyor, etc. But you can walk away for any reason or none, with no comeback at all.

Remember you still need somewhere to live after this is all over. Will houses be cheaper? Perhaps, perhaps not. Will you be in a position to buy? Perhaps, perhaps not. If houses ARE cheaper, then it's because demand has fallen, which is probably because lenders aren't lending...

GDB2222

Thrugelmir said:

VE said:

Hi all, 

First post here since I couldn't find any other post about a similar story.
So my question is what happens to your credit rating if you decide not to go ahead with a house purchase if you still haven't exchanged contracts? We have already secured a mortgage, done all the surveys and searches and the solicitors have finished everything on their side. We were literally about to set exchange dates when the lock down started. 
Of course this is related to the current coronavirus situation and how everyone is predicting a housing market devaluation, even if no one is sure by how much. Like many other prospective first time buyers we are quite afraid of going into a situation of negative equity.
Does anyone know what are the potential impacts on our credit rating if we decide to back out at this point? 
I would also like to add that this may sound like a rant from someone in an incredibly fortunate situation - because it is. We never thought we would be able to buy a house. Now in our mid-thirties we finally saved enough to be in this position, and we feel very fortunate to be in this situation, but as you will hopefully understand the fear of entering such a big commitment facing a potential housing market crash and a deep economic recession can make anyone think twice about such a decision and look for more information on what are the available options. 

Many thanks in advance and I hope you are all well in such strange times. 

VE 

If you buy a property as a home then the value at any point in time is of no consequence. Ultimately when the mortgage is finally settled you can live rent free for the remainder of your lives. The length of the mortgage term, the different rates of interest you'll pay will all be factors as to how much the property ultimately costs to purchase. Being on a repayment mortgage the negative equity should you ever end up in it will naturally disappear.  

Wow, I am just gob-smacked. So, it is 'of no consequence' if you end up in negative equity. Please do try explaining that to the people in negative equity, who are complaining that they are trapped in high interest mortgages, unable to move, etc. I’m sure they’ll appreciate your empathy. Especially, where you explain that their negative equity will just naturally disappear, whilst they are complaining that they are paying so much interest that they can’t afford to pay back the capital of their loan. 

FtbDreaming

@GDB2222 I don’t understand people that have ended up in such a massive negative Equity situation that they can barely afford the interest unless they bought a house that was way beyond their means anyway. People are renting paying £1000 a month and never getting a penny back surely a mortgage will eventually get lower as a pp said.

AdrianC

GDB2222 said:
So, it is 'of no consequence' if you end up in negative equity. 

Unless and until you want to remortgage or move, no. Negative equity situations rarely last long. When they've occurred in the past, it's mostly been due in large part to the kind of LtV that simply isn't seen any more.

Splatfoot

The thing is there are so many things over the course of a mortgage where you can say you've paid too much. We bought in 2006 and fixed into a mortgage in 2008. Our house never went below what we paid but we ended up paying a 5% Mortgage rate for 5 years whilst the interest rates went lower and lower till they sat at 0.5%. We worked out how many thousands we'd paid over the odds (and it did work out a fair old stack) but that's just how it was.. yeah, we could have kicked ourselves for fixing but ultimately we are still in our house, it's still worth £200,000 more than  we paid for it in 2006 even with a recession in the middle of that. Swings and roundabouts but then I'd hate to be renting as that s even more dead money. 

PasturesNew

One thing I learnt, over time, is that if you get a house .... all you have to do is keep finding a way to pay for it every month and it's still yours.  Value is immaterial, especially in your later years if it's a house/home to get and keep you settled.  

If you don't see a need to move from there.... how hard would it be to keep paying the mortgage every month if your life went really badly.  Sit there, lights out, eating beans on toast..... 

Because the alternative is to jack this one in, take your chances on future job/employability, future mortgageability, future mortgage rule/changes. 

Right now, you could buy that house .... and if you can sit it out you can still be in it in 30 years' time. 

Worst case scenario on the flip side is never being in this position again at any house price. 

Which position would you rather be in? 
1/ In a house with the lights out, it's worth 20% less than you paid for it, but nobody can move you on. 
2/ Renting, disappointment at not being mortgageable again .... and prices not plummetting after all.

The closer to, say, 40, that somebody is .... the more I'd tend to lean in favour of "just get it and sit tight".

Carrot007

AdrianC said:

GDB2222 said:
So, it is 'of no consequence' if you end up in negative equity. 

Unless and until you want to remortgage or move, no. Negative equity situations rarely last long. When they've occurred in the past, it's mostly been due in large part to the kind of LtV that simply isn't seen any more.

That's a pretty heartless way to think.

There are people out there that mortgages up to the limit. Are they idiots? Possibly, it's hard to say except in individual cases. Should they be mocked? No.

On my last move I considered taking about half of the mamimum mortgage I was offered to be the right option. Other people do not. It's the issue with a one critera for everybody scheme. It works for some and fails for others.

Consider the areas that had big plans and were the new place to be that now have everything cancelled (even before this), people are often in 40-50% negative equity. They are trapped for trying to find a better place. Often a place that would have been a stopgap if things went to plan. (no room for kids, etc). Are they at fault for wanting to make a better life?