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    • Luciasc
    • By Luciasc 20th Apr 17, 9:25 PM
    • 17Posts
    • 0Thanks
    Be prepared... credit repair question/mortgage
    • #1
    • 20th Apr 17, 9:25 PM
    Be prepared... credit repair question/mortgage 20th Apr 17 at 9:25 PM
    Ok, this is a bit long winded but bare with me... need some help!

    My partner and I live in a flat for which we have had a mortgage for 11 years. We have 100,000 of equity on our 200k flat. We are desperate to move as we have a son and we need the space. However.....!

    We have been in a DMP for 9 years. We have successfully paid off a 15k secured loan several months ago. But we have some credit card debt and still a very low credit scoredue to a fee very old defaults (about to drop off!) and mortgage arrears of over 3 years ago.

    Our income is good but we will still struggle to get our remaining debt paid off in the near future. I'm thinking we need about 30k to clear it.

    So, a close friend is looking to buy a flat to rent. She has offered to purchase our flat, let us rent for cheap, we can clear ALL debt and when ready, we can apply for a new mortgage with a substantial deposit and costs (our equity of 70k )with additional savings once debts are cleared.

    My question is, how long after paying off all our debt and then consistently managing money well, will it take before we have a chance of getting a mortgage?
Page 1
  • National Debtline
    • #2
    • 21st Apr 17, 3:20 PM
    • #2
    • 21st Apr 17, 3:20 PM
    Hi Luciasc,

    My question is, how long after paying off all our debt and then consistently managing money well, will it take before we have a chance of getting a mortgage?
    Originally posted by Luciasc

    First of all, this is a really tricky question to answer. What I can say is that credit scores are not relevant, only your credit history is relevant. Mortgage lenders will normally use your credit history in combination with an affordability check to assess you for future credit. The defaults will come off your file 6 years from the date of default. And (if I have read your message and intentions correctly) your friend is going to buy your property for the full market value, then you would have the money to clear the debts straight away. You could do this in full or you could consider partial settlements to help save some money - especially if the defaults are about to drop off or no longer visible.

    This could mean in a matter of months you could potentially have cleared your debts and have improved your credit report (depending on the date of the defaults). To know if that is enough to get the mortgage you want, you would have to speak to a independent mortgage broker (just be careful of costs). You may also want to chat to a legal advisor about whether you need anything in writing - other than a tenancy - to stay in the property after the sale. I appreciate everyone is approaching this with the best intentions, so it is as case of being extra diligent that nothing is being overlooked because you are friends. Good luck,

    We work as money advisers for National Debtline and have specific permission from MSE to post to try to help those in debt. Read more information on National Debtline in MSE's Debt Problems: What to do and where to get help guide. If you find you're struggling with debt and need further help try our online advice tool My Money Steps
    • Tarambor
    • By Tarambor 21st Apr 17, 4:34 PM
    • 2,671 Posts
    • 1,916 Thanks
    • #3
    • 21st Apr 17, 4:34 PM
    • #3
    • 21st Apr 17, 4:34 PM
    I would work on at least 2 years. After 3 years your credit file will look quite clear so you shouldn't be getting penalised with the rate offered.

    The rent might not be as cheap as you think especially if your friend is in the higher tax bracket due to changes in tax rules which affect how much of the mortgage interest can be offset against rental income. Soon it'll be 0 so income tax would be payable on virtually all of the rental income other than a small amount for expenses, not the rental income less mortgage interest as it used to be which was quite substantial. So if say she was renting it out at 500pcm with little costs she could be facing a tax bill of as much as 200pcm of that. Add the mortgage repayment for the amount she'd need to borrow on top plus at least 50pcm for expenses and that would give you some indication of the lowest amount of rent you're likely to pay.
    • lovinituk
    • By lovinituk 21st Apr 17, 4:41 PM
    • 5,371 Posts
    • 6,044 Thanks
    • #4
    • 21st Apr 17, 4:41 PM
    • #4
    • 21st Apr 17, 4:41 PM
    Renting to/from friends and family is always risky. What guarantees would you have that your friend wouldn't want to evict you at some point in the future, possibly before you are ready? To keep it legal it would have to be a proper landlord/tenant relationship with tenancy agreement, gas safety cert, protected deposit, etc.

    What if your friend ran in to financial trouble?

    Friends can quickly become ex-friends where money is involved.
    • phillw
    • By phillw 23rd Apr 17, 10:05 AM
    • 1,247 Posts
    • 801 Thanks
    • #5
    • 23rd Apr 17, 10:05 AM
    • #5
    • 23rd Apr 17, 10:05 AM
    I would say it was too soon to figure out whether you have your debt problems under control. At the moment the pressure of paying off your debts is keeping you at least reasonably focused on saving money. If you sell and pay off your debts the temptation will be to spend the capital.

    I would think more about finding a property that was more suitable, even if it's in a less desirable area and involve a longer commute etc. Then figure out how you're going to pay for that (which may involve housing association shared ownership)

    Selling your flat sounds like a quick fix, that doesn't actually fix the problem of needing a larger property.

    I wouldn't entertain the idea of renting from a friend, especially a property that I sold them. You'll be resentful if in five years time the property has doubled in value while you've blown all your capital and they won't fix the boiler.
    Last edited by phillw; 23-04-2017 at 10:07 AM.
    • Luciasc
    • By Luciasc 3rd May 17, 3:43 PM
    • 17 Posts
    • 0 Thanks
    • #6
    • 3rd May 17, 3:43 PM
    • #6
    • 3rd May 17, 3:43 PM
    Thanks all for the input and advice. Our friend already has 5 properties that she lets out and has the capital to buy outright so will have no BTL mortgage. We would have an official tenancy agreement and all above board so that neither party would be disadvantaged.

    There is absolutely no way we would spend the capital! We have been desperate to move and our family needs to move for all of our sanity. Our 4 year old needs space and a garden and there is absolutely no way we would jeopardise that. Our debt issues stemmed from a death in the family which then just spiralled...

    We have 1 default between us that will drop off in June. In September our income will increase by 400 as our son goes to school. Our excess income once we are clear of debt (and after all rent, bills etc) will be just under 2k.

    This is by no means a quick fix. We've been in a DMP for 9 years and have been trying desperately to pay off debt but with no savings, any additional expenditure (many car issues, crazy vet bills etc) has thwarted our efforts.

    I have sent all of our info to a specialist mortgage adviser to get his views. Will go from there.
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