Help with mortgage after being rejected by own bank?

Max2000gi

Hi

My wife an I have just been rejected for a mortgage with our own bank. Not sure what to do now.

We have sold our house for £270,000, we currently have a mortgage for £53,000. Between us we have debts of £35,000.

Looking to put £166,000 down as deposit with a view to borrowing £86,000 for new mortgage and to pay debts off.

My bank knew about paying debts off, but still rejected us.

Our joint income is £42,000. Have never missed any payments on the debt and according to Experian we both have an excellent credit score. By paying off the debt we will be over £800 better off per month.

Please can anyone advise on way forward to obtain a mortgage?

Emmia

Could you pay your debts off with the proceeds of the house sale, and then apply for a mortgage on the basis of your income and remaining deposit?

Edit: your "excellent" score is meaningless, only you see this and the made up number. Banks will be using their own data to assess you - your own bank will have lots of information about your payments / spending etc. and as far as they're concerned, you may not use the money borrowed for debt repayment as you may have stated, you could just spend it... Racking up more debt.

vacheron

I agree with @Emmia

Telling the bank you are "paying off debts with your mortgage" could immediately set alarm bells ringing. Instead pay your debts with the proceeds of the sale, and then proceed with the new mortgage with your remaining £131K deposit.

As you have already had a rejection though (and the associated hard searches) you may wish to speak to an independent mortgage advisor who would know the best companies to approach in your situation and thereby minimise the risk of any further rejections.

Jemma01

It doesn't look good to say I'm borrowing more to pay my debt, it looks like you're keeping yourself in the cycle of debt. I'm not saying that paying it would put you in a great position immediately, I'm sure they'd rather see a period of you managing life without debt. They're probably seeing your spendings far exceeding your income, and hence the rejection. £35k debt is crazy high. Was it for a large purchase?

By the end of each month, are you able to save any money? When the bank looks at your incoming money and outgoing spending, are you on the minus?

ACG

Who is your existing bank?

Some lenders like Santander will not ignore debt that is being cleared which can have a big effect on affordability.

Do you know why you were declined? Affordability, credit, underwriters discretion etc?

It might be worth speaking to a broker.

Emmia

https://forums.moneysavingexpert.com/discussion/6667904/help-with-mortgage-after-being-rejected-by-own-bank

If you sell, pay the outstanding mortgage and your debts, you'll have £182,000 - but you only want to put down £166,000 as a deposit - is the other £16,000 for moving costs? Or something else?

Exodi

I'm a bit confused.

You have sold your house for £270k. You have an outstanding mortgage of £53k, meaning gross equity of £217k. You have other combined debts of £35k.

I appreciate selling a house isn't free, so let's say you have £210k left over from the house sale. Obvious thing in my mind would be to pay off the debt, leaving you with £175k for a deposit.

Instead your figures suggest you go from from ~£210k net equity to £166k being put down as a deposit, without paying off the debts? Where has ~£45k gone if it hasn't paid off the debt? The stamp duty would only be a couple of grand.

You're then asking the new mortgage provider to give you a new mortgage which you will put towards paying your existing debts off.

It also sounds like you're downsizing (e.g. going from a £270k house to a £217k house). It would be useful if you could expand more on the circumstances.

It's understandable why the lender would reject this - residential mortgage are typically only authorised for property. Any suggestion that the funds would be used for anything else would likely trigger a denial.

Are you able to sell, settle your finances, and then after purchase with the remaining cash + mortgage? It would be a simple case if you settled your debts with the proceeds from the sale.

Max2000gi

Hi, sorry for not making it clear.

Sold house for £270,000

Outstanding Mortgage is £53,000

Equity in house is £217,000

We, are going to keep £15,000 for moving costs, £7,000 legal fees, and the rest for arranging the mortgage if there is a fee, rather than adding it to the mortgage and removal fee's which we still need to get quoted on. Moving over 200 miles away from current house so expect this to be high.

Keeping £1,000 back as contingency.

Looking to put £166,000 down as deposit and use the other £35,000 to pay off existing debts.

New mortgage of £86,00 to buy new property at £252,000

The debt was incurred doing current house up, and not realising how expensive things are these days.

We bank with the Halifax and they denied us the mortgage, from what the advisor said it was to do with credit score and he advised to check this out with one of the credit score companies, which is what we did (Experian) and scores for both of us, came back excellent, just so confused

Emmia

There are at least 3 companies doing credit referencing - you should check all three, and look at the underlying data, not just the score.

Exodi

Oh I see, that makes much more sense. In your OP you said "with a view to borrowing £86,000 for new mortgage and to pay debts off" which was why it was confusing.

Based on what Halifax said, it sounds like there may be something on your credit file.

It's good you have checked Experian (though ignore the credit score, it means nothing and is just a consumer gimmick, you're looking for anything that could be perceived badly by a lender, e.g. payment history, CIFAS markers, etc), but you should also check the other two big credit reference agencies - Equifax & TransUnion.

All can be checked for free with mobile apps - Equifax you can download the ClearScore app, TransUnion can be checked with the CreditKarma app (or using MSE who recently changed to TransUnion as their CRA!).

Lenders and creditors can check/report to any or all of the CRA's, so checking one does not automatically mean you're clear on all of them. I'd check all 3 and then based on that decide on your next move.

kingstreet

Checkmyfile has a short free period and gives data from all three CRAs but no public record data, such as court judgments.