Mortgages are normally a “good” sort of debt. Not only do you have somewhere to live, and avoid the costs and uncertainty of renting, but you can be buying a valuable asset.
But even though mortgages are a sensible way to borrow, and mortgage rates are at record lows in 2018, they can still have problems. And these can be made worse in Britain because of the high property prices.
Getting a mortgage if you haven’t had big debt problems
How high should my credit score be? The actual number doesn’t matter much! But what your credit record shows about how you have managed credit is very important. See How fast can I improve my credit score to get a mortgage? which looks at different situations.
95% mortgages – In 2020 after the pandemic there are no standard 95% mortgages on offer. Your only chance is a Help To Buy mortgage. These have some BIG drawbacks. not only are the new build houses often cramped and not very well built, but all new houses lose a lot of their value in the first year. If house prices do not do very well over the next 5 years you may be left with large negative equity and be unable to move to anyway larger or in a different area. And at the end of 5 years it may be very difficult to remortgage at a good rate.
Should I opt for a very long term mortgage? This keeps your monthly payments low. But these mortgages can run into problems, it may sound easy and flexible now but read Is a long – 35 or 40 year – mortgage a good idea? to see if one is right for you.
My debts are all fine but are they too high? Debt repayments take up some of your income so it affects the lenders’ affordability calculations. See I have debts – can I get a mortgage? which also has a link to a good affordability calculator. It doesn’t matter if you think the mortgage is affordable, what matters is what a mortgage lender will think.
Will using Credit Ladder help me get a mortgage? It may sound obvious that if you have paid £900 in rent on time for the last few years then you can pay a mortgage of £900, but in 2020 most mortgage lenders do not seem to take any account of rental payments on your credit record. See Should paying your rent on time help you to get a mortgage?
Should I maximise my deposit or clear some more debt? – There isn’t an easy answer to this question. How to balance clearing debts with saving for a deposit looks at what you should be thinking about.
Getting a mortgage if you have had debt problems
Can mortgage lenders see that I have taken Coronavirus payment deferrals? Yes – see Covid-19 – credit score protection, but will it be harder to get credit? for details. The short version is that unless you have a large deposit and can easily pass the affordability tests it may be better to wait 6 or 12 months until it is clear the recent problems are well in the past and are not going to happen again.
I’ve had very recent defaults but paid them off – This may still be a problem, see Will recent defaults stop me getting a mortgage? which answered a reader’s question who had inherited some money.
Am I OK as my debt problems no longer show on my credit record? – Sometimes this is fine, but lenders ask to see your bank statements and have other sources of information. See Can mortgage lenders see debts that aren’t on your credit record? for details
I’m in a DMP – Debt management can go on for a long time and can be shown on your credit file in various ways, so there isn’t a simple answer to this question, but it will normally be very difficult. See Mortgages and debt management.
I’ve had payday loans – In 2020 most lenders will not give you a mortgage if you have had a payday loan in the last two years. See Payday loans make it harder to get a mortgage for details.
I’ve completed my IVA/bankruptcy/DRO – Although bankruptcy, IVAs and DROs all wreck your credit record for six years, you can recover from this if you can get a good deposit together. See Can you ever get a mortgage if you have been insolvent?
I’m in a DMP, can I use Right To Buy? – There is a clause in the Right To Buy rules which says you can’t have an arrangement with your creditors – but this means IVAs not a DMP or payment arrangements, see “Right to Buy” and debts.
When you already have a mortgage
Fixed rate ending? Should your remortgage? More than a million people could save a few hundred or even a thousand pounds a year by getting a new fixed rate. Find out what your 4 options are at the end of a fixed rate and how to decide which is right for you.
Help to Buy mortgages now reaching the crucial 5 year point The government Help To Buy scheme started in 2013, so the first users are now getting to the five year mark when the government starts to charge interest on its 20% share. Should you try to remortgage?
Options if you have an interest-only mortgage At the end of an interest-only mortgage you have to repay the full amount, but nearly a million people in Britain don’t have a plan for how they can afford to do this. Many are hoping they can remortgage, or be allowed to carry on making their usual monthly payments, but this isn’t likely. If you are one of these people, find out what your real options are.
Refused a mortgage – is this reasonable? There are millions of “mortgage prisoners” in Britain, who are stuck in their current mortgage because they don’t meet the new affordability rules that were introduced in 2014. Sometimes the lenders are applying these too strictly though and can be challenged.
Financial problems when you have a mortgage
For remortgage/equity release and secured loan problems if you are in an IVA, look at the Guide to IVAs.
SMI – should you accept the new loan? Support for Mortgage Interest is the name given to the help you can get from the benefits system with your mortgage costs if you retired, unemployed or too ill to work. In April 2018 this stopped being paid as a benefit and started to be given as a secured loan. But if you are out of work it’s still worth finding out about though!
Charging Orders and Orders for Sale If you have a house with equity and you are having problems with your unsecured debts, you may be worried about your creditors getting a charge on your house or even make you sell it. Find out the facts about this area.
Sell the house – a tough decision One of the main aims of debt advice is to let people stay in their own home – but this isn’t always the best decision, so have a think about whether it is right for you.
Repossessions
Repossession after bankruptcy Sometimes when everything has gone wrong and you have a house with negative equity you want a completely clean start after going bankrupt. Find out how to hand back the keys after bankruptcy and make sure your mortgage debt is included in your bankruptcy.
How repossession will affect your credit record Most of the problems that occur here when a lender doesn’t add the correct default date.
Will very low mortgage repossession rates continue? Three reasons why they may be going to increase from 2016.
Shaun says
Hi Sara,
My question may be on the wrong thread so apologies if it is (It was the closest I could find!)
I’ve been in a DMP since late 2010 starting with £43000.
I now have a little over £4400 in unenforceable debts and £7700 on a 2nd schedule to my Mortgage with Landmark.
The £7700 is showing across the 3 reference agencies in inconsistent ways – Arrangement to Pay/6+/DM so even if I paid them today, I’d still be troubled by this for 6 more years. This wasn’t the plan in 2010!
I know I can ask for a back dated default, but i’m reading Landmark can be stubborn about this.
I also noticed recently that the agreement appears to have been rescheduled from what I originally agreed to. The original term with Northern Rock was 276 months, the agreement with Landmark has been reduced to 174 and ends 6 years before my Mortgage. I understand the debt transferred from NRAM, possibly in the same way it would with a DCA. However I don’t understand the benefit to Landmark or myself, rescheduling the agreement over a shorter term at a payment higher than I was paying at the time through my DMP. Can Landmark reschedule without my consent? What questions should I be asking? Thanks in advance.
Sara (Debt Camel) says
I now have a little over £4400 in unenforceable debts
Because the creditor cannot produce the CCA agreement? Have you stopped paying these?
Are all your other unsecured debts cleared?
You had mortgage arrears paid as part of your DMP? Thats… unusual.
it is highly unlikely Landmark will backdate a default – the 3-6 months in arrears guidance doesn’t apply to mortgages.
the agreement with Landmark has been reduced to 174 and ends 6 years before my Mortgage.
This is an arrangement to repay arrears?
I don’t understand the benefit to Landmark or myself, rescheduling the agreement over a shorter term at a payment higher than I was paying at the time through my DMP
If you have repaid a lot of unsecured debt, can you not afford to clear the mortgage arrears sooner? The sooner the arrears are clear the better!
Chris says
Hi Sara,
I was wondering if you could offer any advice, I currently need to raise funds to repair the roof and side and back wall of my house that is leaking quite badly and impacting the interior. I contacted my current mortgage company (Lloyds) but did not pass the soft search check, which wasn’t a huge shock to me as my credit rating has only just crept into the fair category after being poor for a number of years and I have previously had morgtage arrears with them albeit over 2 years ago.
My current mortgage has a balance of ~40k and the house value once the issues are fixed would be around £210-220K, I am looking to borrow circa £50k so I think I am okay from an equity point of view and my income and expenditure would show affordability would not be an issue.
Are there any brokers you could point me in the direction off that may consider someone with poor credit but meets the the other 2 areas, I understand that this would most likely be at a higher interest rate but I am looking to sell the property once it has been fixed and done up so this is less of a concern for me.
Any advice you can offer would be much appreciated.
Thanks
Chris
Sara (Debt Camel) says
Sorry, no.
Nats says
Hi Sara, could you help on what my chances might be for a mortgage?
My Credit score is fair. One default that was paid two years ago and falls off next year. I do have credit card debt of about 6k. My partner who I’ll be applying with has excellent credit and no debt.
Sara (Debt Camel) says
is this default the only problem on your credit record?
The credit card debt – how much of your credit limit are you using? Do you only make the minimum payments each month?
how large a % deposit do you have?
when are you hoping to apply?
Nats says
The default is the only problem yes. I had previous defaults but they dropped off years ago.
The credit card utilisation is approximately 50%. I make more than the minimum payments each month.
Deposit size is about 15% of the house prices we’re considering and hoping to apply ASAP as soon as we find something suitable.
Sara (Debt Camel) says
From what you have said, I would hope you will be able to find a loan at a reasonable rate from a high street lender. Do go through a broker, not direct to a lender.
Jo says
Hi Sara, hoping you can help me. Just wondering if it impacts a mortgage application if you are paid cash? My husband is paid cash with his payslip every week. Should I be depositing that exact amount to reflect it?
Sara (Debt Camel) says
I’m sorry, I don’t know. I would hope his P60s are enough to prove what he earns.
Simon says
I got a Mortagte in principle for 114k for a property
I got 10k deposit and my mum can gift me 10k, I can also save extra 10k, in 10 months to have 30k deposit, ideally I don’t want any from mum.
However prices for houses are about 160k
I wouldn’t mind a flat however there all, Leasehold so very hard to sell in 5-10 years.
Credit scores, excellent experien an
999
Clear score 804 stable
Credit karma 608 Good
No debt other then student loan 9500
Pay day loans over 2 years all paid in time
Salary 23500, bonus 2000 a year
5 miss payments last six years 2 in row 2020
3, 2019, 1 alone and 2 separate
What should I say when they ask why, reason is I was manipulated by friend so could not pay them and it was took out to help brother, in my name.
And that time I was unaware miss payments would effect that much.
How about buy you let for now, at least I will get on the ladder and when I sell could make more
What about a broker, for higher lending will that cost too much, I don’t have thousands to spend on them.
Including bills and mortgate I could afford to pay about 800 a month, if I don’t save any money
Sara (Debt Camel) says
Buy to let’s require a HIGHER deposit than a property you live in. Not an option.
The problem isn’t just your missed payments, it’s that your salary isn’t that great for borrowing more. 4-4.5 is the normal maximum. the exceptions are if you are a high earner.
I think you may need another year or two so your salary goes up and you can save more. During that time the problems on your credit file will get older and less important.
Simon says
I seen a broker she charges £600.
She said she could get me 140k leashold, is that worth it?
She said you can sell they just take longer and would be like savings too
Or should I wait few more years for freehold
Sara (Debt Camel) says
I can’t give you advice on this.