Effect of 5yr old default on mortgage application

Flick85

Hi,

I’m hoping to buy a house within the next 18 months, but am trying to when to do this for the best. I have 2 historic defaults and am not entirely clear how much these will impact my ability to borrow, how much I can borrow and at what rates.

I currently own outright a flat that is valued at £210k. I will be looking to purchase a house up to about £400k. My salary is £50k and job is secure.

So, I have 2 defaults that I’m concerned about. The worst is £2500 for an overdraft from NatWest from my student days that defaulted in March 2017. This default is not settled, and when I was unwell I ignored letters, phone calls, and visits to the extent they stopped contacting me about this over 2 years ago. I have no idea who owns this debt now, but know that NatWest sold it on. I am in a position to repay this now, but I’m not sure how as I do not know who I would repay it to. If they contact me, I’ll pay it. But, I can also just wait out the clock and hope it becomes statute barred.

The other default was from May 2017 was for £59 and was settled in June 2017. 

I want to save up enough before starting purchase process that I can cover all fees and stamp duty etc. with cash, and to use full value of flat as deposit. I should be in a position to do this by summer 2022 as I’m aggressively saving atm.

So, my question is, how much benefit would there be in waiting until April 2023 to start process of getting a 200k mortgage to buy a house at 50% LTV, by which point the NatWest default will become statute barred? 

Or, if I was to start the purchasing process this summer, will that unsettled default still have a big adverse effect on potential rates, possible lenders etc.? 

I appreciate rates are going up, and house prices are increasing too, so this is a balancing act I’m trying to work out. I will also go through a broker.

I’m not in a massive rush, because the longer I stay in flat without a mortgage, the more I can save up. But, I would like to move House before summer 2023 as I will be changing job in Sept 2023 (returning from a temporary secondment into my old role) and I’d ideally like to be in a house before that happens as job change + house move at same time sounds like more stress than I can comfortably cope with.

Thanks in advance!

Thrugelmir

Is your credit file showing the outstanding debt? 

Flick85

Yes, it’s shown as defaulting on 31st March 2017, and marked as unsettled. 

K_S

@felicityBD15 Based on the limited info in your post, at 50% LTV, the (almost) 5 year old defaults mentioned should not overly impact your choices. However, the larger default being unsettled will rule out a few mainstream lenders.

Flick85

K_S said:

@felicityBD15 Based on the limited info in your post, at 50% LTV, the (almost) 5 year old defaults mentioned should not overly impact your choices. However, the larger default being unsettled will rule out a few mainstream lenders.

That’s reassuring. Thanks!

demontfort

 If you own a £210k flat, can buy a £400k house and earn £50k, why wouldn't you repay the money that you owe to Natwest? If Natwest owed you £2500 you'd expect them to repay you. It's the right thing to do and an unsettled default will cost you in terms of higher borrowing costs.

Flick85

demontfort said:

 If you own a £210k flat, can buy a £400k house and earn £50k, why wouldn't you repay the money that you owe to Natwest? If Natwest owed you £2500 you'd expect them to repay you. It's the right thing to do and an unsettled default will cost you in terms of higher borrowing costs.

Because I no longer owe NatWest the debt, as someone else has bought it from them and I have no idea who that is. As I said in the post, if whoever owns it now contacts me, then I will repay them after arguing the amount - the reason it defaulted in the first place was I was in dispute with NatWest about the circumstances, but was too ill to deal with it properly at the time so buried my head in the sand and ignored everything which led to a default rather than agreement about repayment. Until I learn who owns the debt now, I can’t really do much.

And, before you suggest contacting NatWest to find out who they sold the debt to, it has gone through a couple of companies at least - as 
I recall getting letters from multiple different places - so NatWest are unlikely to know who owns it now either, so repaying NatWest will make sod all difference.

Thrugelmir

Put some money aside to settle the debt if you are chased for it. Meanwhile move on with your life and plan to move. Little point putting it on hold.