£300k in bank but cr*p credit rating!

NowFrugal_1

I’m in a pretty unique situation whereby I am debt-free (other than £53k mortgage on a £200k property) and have over £300k in the bank….but my credit rating is so bad, I have been unable to secure a comparatively small mortgage. 

Let me explain. I got myself into a pickle and defaulted on 2 credit cards in late 2020. I arranged a repayment plan with StepChange Debt Charity and had significantly reduced by debt by early this year. I then inherited money, cleared every penny of the debt but am suffering for my sins with the cr*p credit rating (fair enough). My wife and I are looking to purchase a property approx £388k (including second home stamp duty), with the intention being that I would pay £300k and the balancing would be mortgaged. Unfortunately I have been rejected and have been left with a few not ideal options, such as having the mortgage solely in my wife’s name (good credit rating), taking a mortgage with a really cr*p rate, wait until my rating improves or sell my current residential property and use the proceeds of that. The latter option would seem sensible however we have been beaten in bidding wars several times already in last few months and therefore being a chain would hold us back further.

Can anyone:

1) Suggest any other approaches to secure a favourable mortgage or
2) Suggest what I can do (other than the obvious) to improve my credit rating ASAP? My Experian score went down as I had to open a new bank account to place some of the inheritance money. I still have 4 credits cards (all nil balances) - should I close these accounts?

I appreciate these are first world problems but hoping someone can help, if you’ve stuck with me this far!

welly_59

There's nothing you can do apart from wait.

You will be able to get a mortgage, but not at the rates you desire

ACG

I am sorry to sound so blunt, but with less than 12 months in a DMP you are not going to get normal rates. Even with 12 months its not going to happen. 

There are no quick fixes to improving your credit. If you were to clear the DMP and wait a few months, it might help. But the problem is that your credit report is already damaged because of the DMP. 

Get a copy of your credit report over to a broker, maybe see what they can do with and without the DMP but is it the end of the world having a £80k mortgage on a rubbish rate? It will only be for a couple of years. A small mortgage with a high interest rate is usually less of an issue if it is a bigger mortgage - hopefully that makes sense. 

Keep_pedalling

Might be a blessing in disguise, why do you want to put all your assets into property? 

NowFrugal_1

ACG said:

I am sorry to sound so blunt, but with less than 12 months in a DMP you are not going to get normal rates. Even with 12 months its not going to happen. 

There are no quick fixes to improving your credit. If you were to clear the DMP and wait a few months, it might help. But the problem is that your credit report is already damaged because of the DMP. 

Get a copy of your credit report over to a broker, maybe see what they can do with and without the DMP but is it the end of the world having a £80k mortgage on a rubbish rate? It will only be for a couple of years. A small mortgage with a high interest rate is usually less of an issue if it is a bigger mortgage - hopefully that makes sense. 

Thank you for this and nothing wrong with bluntness. To clarify though, I AM out of the DMP arrangement (have been since March/April). I appreciate that it is a long road, but my hope is that with each passing month my record will improve and open doors to better offers. Just not sure how long into the DMP recovery I am likely to have to wait. As for the rubbish rate, yes that is an option. There was one I MAY qualify for at 5.74% which would be approx £30 more a month than a 4% offer which wouldn’t be the end of the world. 

NowFrugal_1

I don’t particularly, but need to keep the mortgage low due to the high interest rates. Was hoping that if/when my rating improves / mortgage interest rate reduces I can pull some equity out of the property to invest with, but that’s further down the road. Open / welcome to alternative ideas.

NowFrugal_1

NowFrugal_1 said:

I don’t particularly, but need to keep the mortgage low due to the high interest rates. Was hoping that if/when my rating improves / mortgage interest rate reduces I can pull some equity out of the property to invest with, but that’s further down the road. Open / welcome to alternative ideas.

That was in response to Keep_pedalling.

Keep_pedalling

NowFrugal_1 said:

I don’t particularly, but need to keep the mortgage low due to the high interest rates. Was hoping that if/when my rating improves / mortgage interest rate reduces I can pull some equity out of the property to invest with, but that’s further down the road. Open / welcome to alternative ideas.

Putting your inheritance into property puts all your eggs in one basket, a house can’t be put in tax efficient wrappers such as pensions and ISAs. With a property is very difficult to avoid capital gains tax  when you eventually dispose of it. Waiting for interests rate to rise to put savings into cash accounts is not investing and is never going to beat inflation.

Becoming a landlord is not something you should do without educating yourself with the obligations and pitfalls that go with such a big decision. I really think you would benefit from taking professional advice from an independent financial advisor, which is what we did after receiving a large inheritance. 

Scorpio33

Credit rating and lending decisions are based on how much money they can make out of you.

The only way to judge that is by your past actions. Unfortunately, your past actions say that you can't manage debt well and don't pay it back in the terms agreed. So you will have a higher rate, due to the higher risk they are taking on. Even with £300k in the bank, that is irrelevant, it is about your behaviour and your ability to pay back debt. 

If the £300k came into play, the question they would be asking is "well why do you need to borrow then?"

Either agree to a higher rate of get the mortgage in your wifes name.

Not sure what the issue is with your wife being sole name on the mortgage? As long as you are named on the deeds, it is a marital asset?

ACG

NowFrugal_1 said:

ACG said:

I am sorry to sound so blunt, but with less than 12 months in a DMP you are not going to get normal rates. Even with 12 months its not going to happen. 

There are no quick fixes to improving your credit. If you were to clear the DMP and wait a few months, it might help. But the problem is that your credit report is already damaged because of the DMP. 

Get a copy of your credit report over to a broker, maybe see what they can do with and without the DMP but is it the end of the world having a £80k mortgage on a rubbish rate? It will only be for a couple of years. A small mortgage with a high interest rate is usually less of an issue if it is a bigger mortgage - hopefully that makes sense. 

Thank you for this and nothing wrong with bluntness. To clarify though, I AM out of the DMP arrangement (have been since March/April). I appreciate that it is a long road, but my hope is that with each passing month my record will improve and open doors to better offers. Just not sure how long into the DMP recovery I am likely to have to wait. As for the rubbish rate, yes that is an option. There was one I MAY qualify for at 5.74% which would be approx £30 more a month than a 4% offer which wouldn’t be the end of the world. 

Ah sorry, I misunderstood. 

I think a lot depends on what your credit report looks like to be honest. 
If it is full of AR markers up until March time then it could be a while as it makes it difficult to pass a credit check. 

Its definitely worth just getting your report and giving it to a broker. The devil is in the detail with these things. 

welly_59

NowFrugal_1 said:

ACG said:

I am sorry to sound so blunt, but with less than 12 months in a DMP you are not going to get normal rates. Even with 12 months its not going to happen. 

There are no quick fixes to improving your credit. If you were to clear the DMP and wait a few months, it might help. But the problem is that your credit report is already damaged because of the DMP. 

Get a copy of your credit report over to a broker, maybe see what they can do with and without the DMP but is it the end of the world having a £80k mortgage on a rubbish rate? It will only be for a couple of years. A small mortgage with a high interest rate is usually less of an issue if it is a bigger mortgage - hopefully that makes sense. 

Thank you for this and nothing wrong with bluntness. To clarify though, I AM out of the DMP arrangement (have been since March/April). I appreciate that it is a long road, but my hope is that with each passing month my record will improve and open doors to better offers. Just not sure how long into the DMP recovery I am likely to have to wait. As for the rubbish rate, yes that is an option. There was one I MAY qualify for at 5.74% which would be approx £30 more a month than a 4% offer which wouldn’t be the end of the world. 

5.74% is one of the better adverse rates in the current climate to be honest. Ive seen up to 7.5% depending on LTV