Bigger deposit or debt free? Poor credit rating!!

SDavies84

Hi,

I am really not sure which category to put this in to, so feel free to move! 😆

 

I am looking for some advice and will try to sum up my situation succinctly! I am 36 and am renting my house with no savings at all and never thought I would be able to get on to the property ladder. A few months ago my grandmother passed away and left me £17000, which was completely unexpected. I really want to use this money to put a deposit on a house (ideally ASAP to take advantage of the stamp duty situation and I feel like it needs to be soon or no-one will offer me a mortgage due to my age!). The problem is that I have a very poor credit rating. I braved looking at it today for the first time in years and it is 578 according to Experian. I have been slowly chipping away at my debt and paying £5-ish a month to each creditor. I also found a couple more debts that I didn't realise I had when looking at my credit report. 😩 I counted everything up and owe a total of £4453. I do not have a very high income to buy a house, I earn £28000 and would be purchasing alone. (I do have a partner who would be paying towards the mortgage, but it would all be in my name).

I am really torn to see if I can get a mortgage with my bad credit rating and be able to put a bigger deposit down, or, should I just pay off everything straight away and only £13000 to put down instead? Will paying everything off make a big difference?

Any advice would be massively appreciated!

K_S

@sdavies84 There isn't enough info to say unfortunately. What are the details of your adverse - any CCJs or defaults, how many, when were they registered, etc. 
How many accounts do you have trundling along on arrears? Are you in a DMP?

SDavies84

Hi,

Thank you, this is the kind of direction I need!

No CCJs and I am not in a DMP.

I have 6 accounts that I owe money to

NatWest Credit Card - in default, balance is £1462. (No arrangement in place as I only remembered/saw this one when logging into Experian today)

NatWest overdraft - have been paying this off via a debt collector at £20 a month. Balance is £723. 

Quick Quid pay day loan 🤢🙄 - £444 balance. (Again, no arrangement in place for this one as was not aware until logging in to Experian)

Vanquis credit card - £165 balance paid off through Lowell at £20 a month

Three - £442 balance paid off through Lowell at £5 a month.

I also have a debt with SSE for around £1000 that I am paying off at £20 a month, but does not appear on any credit report.

With the money that was left to me, I can pay all these off in full straight away tomorrow, but would this increase my chances of getting accepted for a mortgage?

Owleyes00

Not a mortgage expert at all but based on what you owe and to how many people and under what circumstances I think it makes complete sense to pay it all off. You will then be able to use the money you were using to pay off the loans to save to put towards your deposit. Remember that mortgage lenders will look at your outgoings to decide affordability and you have quite a few extras + whatever you would end up arranging for the ones you forgot about.

How much are properties in your area? Would £13k give you 10%? There are lots of areas of the country where it would.

SDavies84

I think my concern is that I know I'm not on a great income for buying a house, but having a deposit of £17000 would be great. Whereas I'm not sure £13000 is quite as good? I also want to move pretty quickly because of the stamp duty thing and also my age! If paying all of them off in full doesn't make a difference to me being accepted I would rather just carrying on chipping away and keep the nest egg intact for when I can use it!

SDavies84

Properties in my area really vary. I live and work in Birmingham at the moment, but would happily move anywhere nearby if it meant I could get a foot on the ladder. Places likes Wolverhampton and Tamworth are much cheaper than Birmingham and I could still get into Birmingham for work

Bobthebuildercanyoufixit

Agree with @Owleyes00 completely.
im not a mortgage expert either but im looking to buy atm, and from experience it is extremely difficult to get a mortgage with payday loans present on file in the last year+ let alone still paying it- even after clearing the amount you will be limited to lenders as some dont even accept it if its shown on your file and this stays for 6years! Some lenders done mind as long as its cleared and/or 3-6-12months ago.
luckily mine was cleared immediately after taking it out and was 6months ago.
Goodluck!

K_S

SDavies84 said:

Hi,

Thank you, this is the kind of direction I need!

No CCJs and I am not in a DMP.

I have 6 accounts that I owe money to

NatWest Credit Card - in default, balance is £1462. (No arrangement in place as I only remembered/saw this one when logging into Experian today)

NatWest overdraft - have been paying this off via a debt collector at £20 a month. Balance is £723. 

Quick Quid pay day loan 🤢🙄 - £444 balance. (Again, no arrangement in place for this one as was not aware until logging in to Experian)

Vanquis credit card - £165 balance paid off through Lowell at £20 a month

Three - £442 balance paid off through Lowell at £5 a month.

I also have a debt with SSE for around £1000 that I am paying off at £20 a month, but does not appear on any credit report.

With the money that was left to me, I can pay all these off in full straight away tomorrow, but would this increase my chances of getting accepted for a mortgage?

@sdavies84

- When was the default registered?

- Assuming that your max borrowing is likely to be in region of 126-133k, what is the house price you are looking at?

- What LTV would a 13k or 17k deposit give you? Would it mean the difference between 85% and 90% LTV?

- Do you care about rate at all - for example (a very crude one not to be taken literally) would you be happy to pay a 7% interest rate because you have an unsatisfied default?

Jen271626

When were the defaults all registered? 

SDavies84

I don't know if I'm being really stupid here, but hope this is right. When looking at Experian these are the dates that say defaulted date on them.

NatWest Overdraft - 31st Oct 2020
Three - Jan 2019
Vanquis - September 2018
Quick Quid - June 2018
NatWest Credit - Aug 2016

With regards to house price, I would be looking at anything I can get to be honest. I would obviously like something I actually like and be happy in, but my main priority is getting my foot on the ladder. I have seen a house I quite like that is £109 000

Concerning rate, again, I would accept something like 7% as I know my credit history combined with my salary would not make me the most attractive candidate. I don't know if it helps, but I currently pay £850 a month in rent and manage this fine and have never missed a date.

Thank you everyone for your advice, it is very much appreciated

Owleyes00

SDavies84 said:

I think my concern is that I know I'm not on a great income for buying a house, but having a deposit of £17000 would be great. Whereas I'm not sure £13000 is quite as good? I also want to move pretty quickly because of the stamp duty thing and also my age! If paying all of them off in full doesn't make a difference to me being accepted I would rather just carrying on chipping away and keep the nest egg intact for when I can use it!

I would forget about the stamp duty holiday. Firstly, if you were to have an offer accepted tomorrow, you would not necessarily now have it sorted by the deadline to benefit.

Secondly, as a first time buyer with your income and deposit, you would not be buying a house where you needed to pay stamp duty anyway.