Credit problems can impact a successful mortgage application and may hinder your chances at some point down the line but Sally and Peter’s situation got slightly more complex when Peter decided to go down a new career path in order to pursue his hobby as a writer.
In this case study, we discuss the importance of taking Mortgage Advice in Derby as early as possible to get you ahead of the game when it comes to your application.
Peter had moments of confliction due to not liking his job, but the salary was adequate enough for him to not want to take the leap and quit.
He started writing more frequently on a weekend, enough to see it as a viable career in itself. He decided for a better work/life balance, self-employment was the way forward, and so he decided to look into self employment mortgages in Derby.
With the additional hours, he could now put to use to develop his own start-up business, this made sure that Peter was seeing profit and after the first year of trading, it was profitable enough for him to consider purchasing a property for himself, Sally and their children so they could invest in a family home instead of renting.
Unfortunately, Peter’s younger years caught up with him and some faults were highlighted on his credit record. Although he had improved his credit score over the past few years, the old defaults were becoming an obstacle.
This brought forward two issues at hand when the customers sought a Mortgage Broker in Derby such as ourselves for Mortgage Advice.
These consisted of finding a lender who would be more lenient than others with past poor credit, whilst also finding the same lender who would allow lending based on the years’ trading figures.
Peter realised that his application would not be easy from the get go and took the sensible approach of seeking mortgage advice in Derby with us early on in the process, even as early as seeking mortgage advice before viewing properties.
Instantly whilst looking over Peter’s Experian report, it was clear to us that a specialist lender would need to be approached. On the upside, his small business didn’t require too much investing financially and he was able to quickly save up a 15% deposit over time with a portion of the savings coming from the ‘bank of Mum and Dad’.
Some lenders who put themselves under ‘specialist’ have made a niche for themselves when it comes to lending and customers who haven’t been Self Employed in Derby for a long period of time.
There is sometimes quite a risk for these lenders as some businesses go bust quite soon after they start out. In order to protect themselves from this, they prefer customers to put down a 15% deposit which successfully helped Peter’s application early on.
From this, we were able to obtain a mortgage agreement in principle and Peter and Sally went on to purchase a family home.
A downside with specialist lending is because they are working with niche customers, they do tend to charge higher rates of interest than you might see within establishments such as high street banks.
Just because these rates are higher in no means does it mean extortionate, overall in many cases, it is still cheaper than renting.
If you go with a specialist lender for your first mortgage, this does not mean that you are frozen out of other competitive mortgage rates in the future.
While it’s likely that you’ll have to sign in for at least two years, if you can prove a good payment history, then a remortgage to a more well-known lender offering a better deal after a while should be achievable.
It’s likely you may have to sign in for at least two years, but if you’re able to prove a good payment history, then a remortgage to a different lender, who is offering a more suited deal for you, should be achievable later on down the line.
This doesn’t faze specialist lenders as they expect that this is what may happen when they take some cases on. These lenders perceive themselves as ‘stepping stones’ and when you move to a different lender, they tend to lend the funds that have been repaid and seek to lend it back out to future customers.
Overall, a vital part is played in the mortgage market by specialist lenders as they help customers that a lot of banks usually will not. However, this does not mean that they will lend to just anyone, as you will have to be able to fit their criteria.
Many people are, to a greater or lesser extent in debt at some point in their lives. Sometimes due to personal circumstances, this can spiral out of control. When this happens, it can feel that once you have paid all your bills at the start of the month, there is little or no disposable income left.
One route out of this for some applicants is to consider a debt consolidation remortgage in Derby, as we explore here in this case study.
Deborah was a divorcee living on her own; her children have flown the nest. Her debt had started to accumulate with legal bills after her divorce and increased gradually over the years, having to live on one income with unreliable maintenance from her ex. Finally, her daughter became pregnant quite young, and as any mum would, she tried to help her out financially, although arguably, she couldn’t afford to do so.
Luckily Deborah had paid her mortgage off some years ago so that asset was there to potentially borrow against. Her take-home pay was £1100 per month, and her credit commitments were taking up more than half of this.
She had not missed any payments on credit commitments, but she had no emergency fund, and while Deborah’s credit score wasn’t too bad, she was no longer able to obtain new zero% credit cards to transfer her balances.
She was recommended to me to see if there were any options available to improve the quality of her financial life.
When I met, Deborah was feeling quite low. She had cut back on all luxury spending, and it was evident that she was desperate to take ownership of her financial situation before it got any worse.
We explored the possibility of a personal loan, but the debts had mounted too high for that. Deborah had no family members who were able to help; downsizing was not an option, and we agreed the right way forward would be to remortgage the house to pay off the debts and reduce her outgoings.
We managed to find a Lender to meet Deborah’s requirements. Although it has to be said given her low income, it was hard to find a lender who would lend her enough. We managed to get her an Agreement in Principle, but regrettably, when we submitted the formal mortgage application, it was declined.
The reason the case was declined was that the Underwriter who assessed the situation felt that because Deborah had been using cards to pay off other cards and not then closing down the cards.
When she had transferred balances, there was a high risk that she should re-offend and rack up debts again.
Deborah was devastated. She understood the concerns, but in her eyes, she had accepted she had a problem, and by engaging us had taken a positive step to remedy her position. To her, their risk was minimal – the loan to value was under 40%, she had never missed any payments, and if the remortgage was successful, she could be a whopping £500pm better off.
All the above was indeed correct, but clients don’t always appreciate that taking a property into possession is the last thing a Lender wants or needs. It reflects poorly on the numbers they are required to report each year. In the event of repossession, they have the considerable hassle of securing the property, ensuring it, marketing it, selling it, and paying the surplus of equity (if any) back to the previous owner.
As such, if there is reasonable doubt, then an Underwriter has the discretion to decline an application, even if it is within their published lending criteria.
We pride ourselves on getting our recommendation right the first time, but this one didn’t work out that way due to the Underwriter’s adverse comments at the full application stage. However, we knew this remortgage wasn’t as risky as the Lender had made out, and it ought to be the right outcome for her.
Deborah perhaps felt like she wanted to give up, but we went back to the drawing board to find a different Lender. Sure enough, we found one and armed with the information we had from the previous Lender. We were able to provide better supporting comments for the second roll of the dice, and luckily this time, it was successful.
Deborah didn’t take this step lightly. She has now secured debt that was previously unsecured and may end up paying back more interest overall, depending on how quickly she can get the mortgage paid off.
However, in the short term, this has worked well for her. She now has had the burden of debt relieved from her shoulders, her credit score has improved, and she can save a little each month.
The savings we were able to help her make amounted to over 50% of her net take-home pay monthly and it has changed her life. Upon completion of the remortgage, Deborah cut up all her credit cards except one to use in emergencies only, and she has now got her financial life back on track.
If you are like Deborah struggling with debt but are a Homeowner with equity please call us to discuss your options, ideally before the situation gets out of hand. The earlier you take back control of your finances the better you will feel about things. We offer debt consolidation Remortgage Advice in Derby & surrounding areas.