Debt Consolidation After Defaults – Rebuild Plan Before Remortgage

buel10

Hi all,

Posting for a friend who’s trying to get their finances in order ahead of a future remortgage and would really value some advice.

They currently have three defaulted accounts (one in their name, two in their partner’s), all currently unsettled. Their credit scores are poor, but they have steady long term employment, strong affordability, and have never missed a mortgage payment.

They’ve just renewed their mortgage on a 3-year fixed deal, and the goal is to tidy everything up now so they’re in a much stronger position when it ends.

The defaults happened during a tough period when their outgoings increased due to maternity leave and a significant drop in household income, high nursery fees for their other children and other increased costs from the cost-of-living crisis. 

It became unmanageable, and a few accounts defaulted. Now, things are much improved, both have had pay rises, mat leave is finished and they have much more funding for their childcare costs. They’re confident this was a temporary setback and are very unlikely to fall behind again.

They’ve sent CCA requests to each creditor to confirm the debts are enforceable but haven’t had responses yet.

Once confirmed, they’re planning to settle, either in full or via partial settlements, but they’re unsure if partial settlements could affect their future mortgage options when the fixed deal ends in 3 years.

Their mortgage adviser has suggested considering an unsecured personal loan to settle the defaults, so the accounts show as ‘satisfied’. The key aims are:

• Clean up the credit file
• Avoid high-cost credit
• Rebuild for a better mortgage deal later

They don’t want to secure anything against their property. They’d really appreciate advice on:

• Which lenders are open to applicants with defaults but strong affordability
• Whether using a specialist broker is sensible and which one(s) are recommended?
• If credit unions are a good alternative
• How to use soft-search tools to find realistic options
• Whether partial settlements (vs full) will harm their credit or future lending options

They’re keen to avoid multiple hard searches and very high-APR ‘bad credit’ loans, and want to approach this in the most sensible way.

If anyone’s been through this, settling defaults and rebuilding ahead of remortgage, or has tips on lenders, brokers, or settlement strategies, they’d be really grateful to hear your experiences.

Thanks in advance for any help!

Brie

No one here is ever going to say that doing a debt consolidation is a good idea.  All it does is move the debt and not actually solve the reason for the debt.   So, no.  Don't do it.  The mortgage adviser is a twonk to suggest it.  

If you can convince them then get them to do a statement of accounts (see my signature below) and post it back here and we'll make suggestions on how to deal with their budget.  There's a lot of debt solutions possible.  

If they don't want to come back here then at least suggest that they read the debt solutions page on Debt Camel - one of the best debt advice websites in the UK.  Debt solutions - what is your best option?

I'm glad you are being a good friend in supporting them but it will be best if they post or read the info themselves.  

RAS

We also need to clarify why your friends are re-mortgaging?

Will they actually just need a new fixed rate deal? Which they can do with their current mortgage provider about 3-6 months before this one ends, just by logging in and selecting the best one offered by their current provider, without any credit check.

They only need a mortgage advisor if they want to select from the whole market. 

Defaults are recorded for 6 years and a consolidation loan isn't going to make their credit records look any better.

Ask you friends to come on here and complete a Statement of Affairs. There is a link in Brie's signature. Best based on actual spends over the last few months, format for MSE with more details. 

ManyWays

Their mortgage adviser has suggested considering an unsecured personal loan to settle the defaults
A truly silly suggestion. Starting to add interest on is the last thing they need. Especially as such a loan would NOT be cheap with recent unsettled defaults on their credit record. Many credit union loans are also very expensive!

 they’re unsure if partial settlements could affect their future mortgage options when the fixed deal ends in 3 years.
Many mortgage lenders will be just be happy the defaulted debts were settled a couple of years before a mortgage application and won;t care that it is partially. At that point, it's a good idea to talk to a broker, but really I suggest avoiding whoever they have been talking to at the moment.

Also what were the default dates on the credit record? Once it gets past the 6 year point, these will no longer show so whether they were partially settled or in full will not be visible. Settling a debt doesnt change when the debt drops off 6 years after the default date.