Mortgage with Defaults

Superhoopza

Hi,

Probably a topic that has been discussed plenty. Just wondering if any mortgage advisors here could advise how big an impact 1 or any defaults could have on getting a mortgage whilst they remain on your credit file? I'm debating whether to pay off all my debts incurring big interest along the way or to allow them to default (10+ creditors) and pay via a DMP but also saving at the same time.

Please don't post things here relating to how I should be managing my money or other debt advice. I have another thread for that. I just want some advice on how damaging defaults are in getting a mortgage to help me better make my mind up on next options.

Thanks

ACG

Im not sure it is possible to answer your questions without writing war and peace. 
It really depends on how many defaults you have, how big your deposit will be, how old the defaults will be when you come to apply for a mortgage. 

What I would say is purely from a mortgage perspective, it wuold make more sense to allow your debts to default and then set up a payment plan with the debt collectors than it would be to go into a DMP. Thats not me giving you debt advice btw, you should speak to someone like stepchange for that. 

If you are not planning on buying for 3-4 years, it might be ok. If you are planning on buying in 12 months then you are going to need a hefty deposit if you have 3-4+ defaults registered. 

kingstreet

Reason, date of registration, size, date of satisfaction and loan to value all impact here so it's impossible to say with any degree of accuracy.

Here's Barclays as an example;-

Adverse credit as detailed below must be declined:

• Any unsatisfied CCJ
• More than 1 satisfied CCJ and the latest is registered within the past 3 years
• Satisfied CCJs totalling more than £200 and the latest is registered within the past 3 years
• More than 3 satisfied defaults* and the latest is registered within the past 3 years
• Satisfied defaults* totalling more than £200 and the latest is registered within the past 3 years
• Any outstanding default, irrespective of amount
• If it is identified that a limited company, in which an applicant has greater than 15% shareholding, has any outstanding judgements totaling more than £5,000

*Includes partially settled defaults which will be referred out to check whether full and final settlement has been made.

ACG

kingstreet said:

Reason, date of registration, size, date of satisfaction and loan to value all impact here so it's impossible to say with any degree of accuracy.

Here's Barclays as an example;-

Adverse credit as detailed below must be declined:

• Any unsatisfied CCJ
• More than 1 satisfied CCJ and the latest is registered within the past 3 years
• Satisfied CCJs totalling more than £200 and the latest is registered within the past 3 years
• More than 3 satisfied defaults* and the latest is registered within the past 3 years
• Satisfied defaults* totalling more than £200 and the latest is registered within the past 3 years
• Any outstanding default, irrespective of amount
• If it is identified that a limited company, in which an applicant has greater than 15% shareholding, has any outstanding judgements totaling more than £5,000

*Includes partially settled defaults which will be referred out to check whether full and final settlement has been made.

Just to add to what Kingstreet has said though, although those things are within criteria. It still has to pass the credit scoring check they carry out.

Superhoopza

ACG said:

Im not sure it is possible to answer your questions without writing war and peace. 
It really depends on how many defaults you have, how big your deposit will be, how old the defaults will be when you come to apply for a mortgage. 

What I would say is purely from a mortgage perspective, it wuold make more sense to allow your debts to default and then set up a payment plan with the debt collectors than it would be to go into a DMP. Thats not me giving you debt advice btw, you should speak to someone like stepchange for that. 

If you are not planning on buying for 3-4 years, it might be ok. If you are planning on buying in 12 months then you are going to need a hefty deposit if you have 3-4+ defaults registered. 

Thanks for responding. Yes my timeframe would be about bang on 3-4 years ideally. 

Brie

Superhoop91 said:

Thanks for responding. Yes my timeframe would be about bang on 3-4 years ideally. 

And when you get to that point you might want to consider a mortgage adviser to ensure you go with a bank that will be happy with your situation. 

Superhoopza

Brie said:

Superhoop91 said:

Thanks for responding. Yes my timeframe would be about bang on 3-4 years ideally. 

And when you get to that point you might want to consider a mortgage adviser to ensure you go with a bank that will be happy with your situation. 

Great idea, thank you.

Superhoopza

kingstreet said:

Reason, date of registration, size, date of satisfaction and loan to value all impact here so it's impossible to say with any degree of accuracy.

Here's Barclays as an example;-

Adverse credit as detailed below must be declined:

• Any unsatisfied CCJ
• More than 1 satisfied CCJ and the latest is registered within the past 3 years
• Satisfied CCJs totalling more than £200 and the latest is registered within the past 3 years
• More than 3 satisfied defaults* and the latest is registered within the past 3 years
• Satisfied defaults* totalling more than £200 and the latest is registered within the past 3 years
• Any outstanding default, irrespective of amount
• If it is identified that a limited company, in which an applicant has greater than 15% shareholding, has any outstanding judgements totaling more than £5,000

*Includes partially settled defaults which will be referred out to check whether full and final settlement has been made.

Thank you. So basically no chance if I have a default within 3 years and if it takes me three years to pay my creditors even if I default, there's your 6 years you're looking at anyway. So no chance within 6 years this way. It might be difficult to get one anyway given the level of debt and time to repay and save for a deposit but at least I have more flexibility this way.

ACG

You would be looking at little building societies or adverse lenders, they work from the date of registration. 

As an example, if you had 5 defaults today, it would be possible to get a mortgage in 3 years time, you would need probably a 15% deposit and rates would be around 6.5-8%.

If you had 1 default today and applied in 3 years time, you might be looking at a normal lender or a little building society. You could potentially get away with a smaller deposit and lower rates. 

Superhoopza

ACG said:

You would be looking at little building societies or adverse lenders, they work from the date of registration. 

As an example, if you had 5 defaults today, it would be possible to get a mortgage in 3 years time, you would need probably a 15% deposit and rates would be around 6.5-8%.

If you had 1 default today and applied in 3 years time, you might be looking at a normal lender or a little building society. You could potentially get away with a smaller deposit and lower rates. 

Thank you very much, so number of defaults do matter then. Really appreciate this, thank you.

ACG

Its not really that cut and dry. 
Some lenders have no limit and work from the registration date - they are criteria driven rather than credit score driven. 
Other lenders have limits, but they may have different limits - ie, if you have had 2 in the last 3 years we will charge you x%, if you have had 3 we will charge y%....
Other lenders (high street lenders), may or may not have limits and just rely on credit scores. If you have 2 defaults for £20 on mobile phone contracts, it is more likely to pass than if you have 5 defaults on credit cards for a grand each. 

The one thing they all have in common though is that if you default today, the line is drawn in the sand. It will only get better. 

Again, im not suggesting you do default or you do or do not enter a DMP. Just trying to be as factual as I can be. 

Another thing to consider is if you do default, that means you are pretty much stuck for a little while - you might struggle to get a phone contract, a new tenancy agreement etc.