First time buyers loan and previous bad credit

tetty177

Just looking for advice/others experience. So myself and my partner are first time buyers and looking to start the buying process at the end of this year. We have both had previous bad credit however currently have good credit ratings according to the 3 agencies. I do have a default from 2019 still showing but the debt has been deemed unenforceable so I am questioning this default however the debt is for £600 so I am able to pay this off if necessary. My husband has no defaults / missed payments showing. 

My worry is of course our bad credit history (this was from around 2012-2017. However my other concern is we both have a individual loan of 10K. So pay £280 per month each in loan payments. We recently got this loan as our car died and we need it for work and collecting our 2 children from parents who are our childcare. I also have a student loan of around £140 per month. 

My husband earns £36000 per year but has regular overtime which brings in another £32000 per year. He has been in his role since 2010 but overtime has been regular for about 18 months. I work 2 part time jobs one I have been in since 2009 and earn just over £27000 the other I have only started recently and earn £23000 from. We bring home around £6800 per month after tax my husband’s pension payment and my student loan. We are looking to borrow around £375000 and have a £50000 deposit so mortgage repayment with current interest rates will be around £2170. My worry is that the loans will stop us getting a mortgage. They are always paid on time so no issues there. We both have a credit card but we use them to pay for petrol/food which we then pay in full each month mainly to help show we can use credit sensibly more than anything else. Any advice on the impact this will have on a mortgage application. Based on the loan payments and income the online calculators so say we could be offered up to £470000 so we are asking for 95k less. When banks do affordability checks do they take into account utility bills, mobile contracts, things such as swimming lessons I pay for the children? And what is a good income to debt ratio? Is this gross or net income? 

Thanks to all who have got to the end of this and any advice would be grateful 

MFWannabe

If I were you I’d speak to a good mortgage broker 
You would also be better posting this on the mortgage board, a moderator may be able to move it for you 

Schwarzwald

You have savings of £50k and a combined net income of £7k pcm ….

why did you take out the £20k loan for the car and at what interest rate? 

And why dont you settle your old debt of 600 to close this out? Why only “if necessary”?

agree probably best to speak to a mortgage advisor but also to a financial advisor at all, above strikes as a bit odd without further context

tetty177

We took the loan as the deposit is being gifted so will only be given to us when it comes time to buy. 

The loan was 4.5% apr I believe.
so Re the loan I’ve paid off £1000 of it which I believed I owed. The company then said I owed an extra £600 which I disputed and asked for
proof I still owed this. I have recently received a letter saying they couldn’t provide this proof and therefore it was unenforceable so they would no longer chase me for this but it would remain on my file. So yes I don’t want to have to pay a multimillion pound company £600 when I don’t believe I really owe it however if it means a better chance of a mortgage I will have to suck it up and pay it. 

Sorry if a gift from parents and taking a loan
seems “odd”! 

PartyOfFive

Satisfied defaults look better to Mortgage lenders than non-satisifed ones.
They are not going to care if you have a letter saying it is unenforceable.

Even if you do get approved, the interest rate that you get with a non-satisfied default will be higher than with a satisifed default.
That higher interest rate will probably cost you more than £600 over the course of the mortgage term.

So its a no-brainer really.  Settle the default, get it satisfied on your credit report, look slightly more appealing to lenders, and get a marginally better rate saving you more than it costs to settle the loan.

Dont really understand why between the pair of you have an income of circa £100k per year are quibbling over £600 quid.

babyblade41

I personally would have not got such a hefty loan for the car TBH , also as the loan is gifted it doesn't look so good that you haven't actually saved anything towards the deposit.

My advice is to get rid of the car loan and change to something a lot cheaper and start saving . I would imagine for a car of that price then insurance must be quite high too 

Just buying the home is  just the start, you have legal fees plus maintaining the house will need a certain amount in savings for those unexpected expenses especially int the first year

[Deleted User]

Schwarzwald said:

You have savings of £50k and a combined net income of £7k pcm ….

why did you take out the £20k loan for the car and at what interest rate? 

And why dont you settle your old debt of 600 to close this out? Why only “if necessary”?

agree probably best to speak to a mortgage advisor but also to a financial advisor at all, above strikes as a bit odd without further context

There is no need for that tone. tetty has already explained, but there are many reasons to do this. As well as a gifted deposit, you need a big deposit to buy a house so it often makes more sense to take on debt than to spend what you saved up. Sure you will be able to borrow less, but if you don't have the deposit then it's all academic anyway. 50k is 10% or less in many places.

tetty177

The reason I was Quibbling over 600 quid was because as far as I was aware I have settled the debt. Then received a letter 6 months after the fact saying I owed another £600 therefore I questioned it and only then received the letter. 

Yes we have a good income but we are in London so rent/house prices are a joke. My husband works a lot of extra hours for us to earn that money. I also don’t really want to give my hard earned income up if I genuinely believe I paid the debt it’s almost like they added the extra on out of thin air and have no explanation why hence the query. 

Re paying off the loan we could probably be super tight and pay off 50% of it over the next few months. I have spoken to the loan company and be doing this we could re-negotiate the terms so that we pay less over the same term so effectively half our monthly payments. 

tetty177

Re tha car we originally bought a cheap second hand one but that’s what died on us and with 2 children I needed something more reliable plus big enough as they are both still in car seats. We really haven’t gone for a top of the range car but it is something big enough for us all and as it’s a Kia came with 3 years still on the warranty hence why we went for it. 

PartyOfFive

The reason I was Quibbling over 600 quid was because as far as I was aware I have settled the debt. Then received a letter 6 months after the fact saying I owed another £600 therefore I questioned it and only then received the letter. 

Yes we have a good income but we are in London so rent/house prices are a joke. My husband works a lot of extra hours for us to earn that money. I also don’t really want to give my hard earned income up if I genuinely believe I paid the debt it’s almost like they added the extra on out of thin air and have no explanation why hence the query. 

What you need to understand is that a Mortgage lender isnt going to care about any of that. They will just see an unsatisfied default for a relatively low sum of money, giving the impression that you don't pay your debts - putting you in a higher risk category, leading to a higher mortgage interest rate, costing you more than £600 in the long term.

If you genuinely don't believe that you owe the sum of money, then escalate your complaint about the £600 to the Ombudsman. If they find in your favour, then the default may actually be removed... of course, pragmatically speaking, it'll take at least 6 months if not longer for that to happen (if you are only looking to start buying at the year then maybe you have time).

I live in London too (soon to escape to the countryside), and agree property prices are out of whack in relation to the rest of the country... but it isnt a joke, as you'll soon find out if you ever decide to sell your London place and move elsewhere.  London property (generally speaking) rises faster than the wider market, especially if you move into an area that is at the beginning of a gentrification period.  In my case, I've sold my 1 bed flat and have been able to buy a large 4 bed in Berkshire mortgage free. I've been particularly lucky, but my friends from other parts of the city are seeing large gains too. 

To be honest, the best advice anyone can give you RIGHT NOW, is to get yourself in the best position regarding debt.  Why don't you be super tight for the next 6 months and pay off 100% of the loan?  Has the benefit of improving your affordability - and just think of what you could do with that spare £500 odd quid a month between you in a new house?  One other idea would be to use that to go towards paying off your Student Loan? (Again, going a long way towards affordability).

Also - no-one is suggesting you both aren't working hard for your money.  Most of us here do that too.

You asked for advice, and it's the best that you're going to get.

Also - have you paid off the c.£13k of credit card debt you mentioned here?
https://forums.moneysavingexpert.com/discussion/6244577/paying-off-debt-to-improve-credit-rating#latest

tetty177

I didn’t mean to come across rude so apologies if that was the case. I’m particularly annoyed with the company the debt is because I feel the default was unfairly added as well as the £600 which is why I’m probably a bit more stubborn regarding it. It was part of the old debt I mentioned in my original post and was on a payment plan which I paid consistently for 3 years with no default added. When I got down to the last £900 it was sold to a debt collection agency and I was told they were happy for my to continue with the payment plan which I did but it was only at this point the default was added. Well after the first 6 months of payments. If the original company had put on the default when I first struggled to make payments then it would be off the account by now. Then to add insult to injury I believed I had finally cleared the debt then I got a letter saying I still owed £600. I did refer to ombudsman but it is taking a while to investigate hence why o asked the question as I’m unsure what is best to do and as annoying as it is my main concern is the ability to get a mortgage not the £600. I suppose it just become a point of principle for me now. 

Re the other post it wasn’t actually my debt but my husbands and I posted on his behalf but yes it is now cleared. 

Really annoying as we were actually debt free then we got the loan for the car however at the time we had not considered a mortgage then my mum come into some money and offered to gift us a deposit hence why I am now in this situation. If we had known prior we would have made do with a cheap run around for another year or so before considering the car.
re the it’s a joke comment I mean more the rent we are currently paying than a mortgage.