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FTB mortgage with two defaults

Options

Afternoon,

I am looking to buy a house in Scotland. I'm currently on £33,000 a year but with overtime and commission it is about £43,000. I am 40 and keen to get on the housing ladder.

Should I continue to pay off my credit card debt and two defaults at £1,200 a month as I am doing or should I reduce that amount and build a deposit?

Current debt -

Credit card 1 - £900 (down from £4k since February)

Credit card 2 - £3,000

Credit card 3 (interest free) - £800

Default - store card £800 (April 2021)

Default - car finance £1500 (Jan 2023)

I am paying a minimum payment to credit card 2 and credit card 3 as I was focussing on the higher interest card. I will have paid off credit card 3 before my interest free period comes to an end.  According to my credit report I have to late payments in the last four years.

I am on track to clear all debt in October this year and was going to then use that money to build a deposit. I reckon I will have £12,000 by this time next year. Is that the best plan or should I look to save a deposit?

Currently renting a room with bills included so my outgoings are rent, mobile phone, car insuranceand road tax.  Total about £800.  I take home anything between £2500-£2800 every four weeks (13 pays a year).

Someone said to me to clear the defaults first - I'd was planning on paying them off last as there is no interest accruing.

Any advice welcome.

Thanks,

LH

«1

Comments

  • LopsidedHornet
    LopsidedHornet Posts: 7 Forumite
    First Post
    EDIT:

    Default - store card £800 (April 2021)

    Default - car finance £1500 (Jan 2023) (Jan 2022)



  • Emmia
    Emmia Posts: 5,556 Forumite
    Fifth Anniversary 1,000 Posts Photogenic Name Dropper
    edited 9 June at 6:32PM
    You ought to clear your cards before looking for a mortgage - debt and repayments will be factored into what you can borrow and mortgage payments.
  • LopsidedHornet
    LopsidedHornet Posts: 7 Forumite
    First Post
    Emmia said:
    You ought to clear your cards before looking for a mortgage - debt and repayments will be factored into what you can borrow and mortgage payments.

    Thank you for the reply.  What about the defaults?  Prioritse them before the cards?  I will be able to pay them off over the next two pay days.
  • Emmia
    Emmia Posts: 5,556 Forumite
    Fifth Anniversary 1,000 Posts Photogenic Name Dropper
    Emmia said:
    You ought to clear your cards before looking for a mortgage - debt and repayments will be factored into what you can borrow and mortgage payments.

    Thank you for the reply.  What about the defaults?  Prioritse them before the cards?  I will be able to pay them off over the next two pay days.
    With defaults you'll struggle to get a good rate...
  • LopsidedHornet
    LopsidedHornet Posts: 7 Forumite
    First Post
    Emmia said:
    Emmia said:
    You ought to clear your cards before looking for a mortgage - debt and repayments will be factored into what you can borrow and mortgage payments.

    Thank you for the reply.  What about the defaults?  Prioritse them before the cards?  I will be able to pay them off over the next two pay days.
    With defaults you'll struggle to get a good rate...

    I understand that but I'm going to be looking at a modest two bed flat probably between £100,000-120,000 so it should still be affordable.  I'm going to speak to a mortgage broker and see what they say. 

    I've got around £1,450 per month available to clear just shy of £7000 debt and like I say, will be debt free come October.  I opened and stuck a tenner into a LISA before my fortieth birthday so I should be able to max out the government bonus this tax and if I need to wait a year to help my credit score improve I will be able to max out next financial's bonus too. 

    I'm really asking if I should

    A) Pay off all debt first (no emergency fund, no savings)
    A (2)) Which debts to prioritise?  Highest interest or defaults?
    B) Put half of the £1,450 on debt repayment (if so see A2) and the other half into my LISA

  • Emmia
    Emmia Posts: 5,556 Forumite
    Fifth Anniversary 1,000 Posts Photogenic Name Dropper
    Emmia said:
    Emmia said:
    You ought to clear your cards before looking for a mortgage - debt and repayments will be factored into what you can borrow and mortgage payments.

    Thank you for the reply.  What about the defaults?  Prioritse them before the cards?  I will be able to pay them off over the next two pay days.
    With defaults you'll struggle to get a good rate...

    I understand that but I'm going to be looking at a modest two bed flat probably between £100,000-120,000 so it should still be affordable.  I'm going to speak to a mortgage broker and see what they say. 

    I've got around £1,450 per month available to clear just shy of £7000 debt and like I say, will be debt free come October.  I opened and stuck a tenner into a LISA before my fortieth birthday so I should be able to max out the government bonus this tax and if I need to wait a year to help my credit score improve I will be able to max out next financial's bonus too. 

    I'm really asking if I should

    A) Pay off all debt first (no emergency fund, no savings)
    A (2)) Which debts to prioritise?  Highest interest or defaults?
    B) Put half of the £1,450 on debt repayment (if so see A2) and the other half into my LISA

    It's not about affordability, it's whether with defaults, a lender will take a gamble you'll pay what you signed up to.
  • LopsidedHornet
    LopsidedHornet Posts: 7 Forumite
    First Post
    Well if that's the case, is there any point in paying them or just waiting until they drop off?
  • ACG
    ACG Posts: 24,528 Forumite
    Part of the Furniture 10,000 Posts Name Dropper I've helped Parliament
    I think Emmia is being overly harsh on you. Your defaults are over 3 years old and dated within 9 months of one another which combined with 3 years clear suggests there was a bit of a rough patch - I think most people can relate to that. 

    We do not do many mortgages north of the border, but in terms of adverse lenders there are fewer options - but from what you have said, there WILL be options. 

    However, I think because of the age of the defaults, the fact they will have been satisfied for a while there is some potential for high street rates. Take a look at this thread for example - https://forums.moneysavingexpert.com/discussion/6611842/what-rates-could-we-be-looking-at
    They have a larger deposit than you have, but they also have more adverse. 

    Speak to a broker but I think you will be fine. 
    I am a Mortgage Adviser
    You should note that this site doesn't check my status as a mortgage adviser, so you need to take my word for it. This signature is here as I follow MSE's Mortgage Adviser Code of Conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice.
  • LopsidedHornet
    LopsidedHornet Posts: 7 Forumite
    First Post
    ACG said:
    I think Emmia is being overly harsh on you. Your defaults are over 3 years old and dated within 9 months of one another which combined with 3 years clear suggests there was a bit of a rough patch - I think most people can relate to that. 

    We do not do many mortgages north of the border, but in terms of adverse lenders there are fewer options - but from what you have said, there WILL be options. 

    However, I think because of the age of the defaults, the fact they will have been satisfied for a while there is some potential for high street rates. Take a look at this thread for example - https://forums.moneysavingexpert.com/discussion/6611842/what-rates-could-we-be-looking-at
    They have a larger deposit than you have, but they also have more adverse. 

    Speak to a broker but I think you will be fine. 

    Thank you for your reply.  I appreciate you taking the time.  I didn't make clear but the defaults are *not* satisfied.  I have being paying down my debt in order of highest interest rate.  One thing I was wondering was if I should pay off the defaults first?  I could have them cleared over the next two day pays.
  • ACG
    ACG Posts: 24,528 Forumite
    Part of the Furniture 10,000 Posts Name Dropper I've helped Parliament
    Ah sorry, I misread but it is listed under current debt so I think thats on me. 

    Its a difficult question to answer, you stand a better change of being accepted if they have been settled a while. But at the same time, if they came back and said we cant do 90% LTV but we can do 85%, that £2k would be almost half of the extra you need. 

    I think I would be more inclined to hold the money back, but I think you could argue it both ways. 
    I am a Mortgage Adviser
    You should note that this site doesn't check my status as a mortgage adviser, so you need to take my word for it. This signature is here as I follow MSE's Mortgage Adviser Code of Conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice.
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