What will happen if I sign up for the Debt solution plan and have credit defaults on my credit report?
Many new and existing Debt solution clients have this query that they want to know about.
There are a lot of mixed questions out there about mortgage options, whether it is possible to get a mortgage or remortgage. It becomes more relevant when you have had problems with credit in the past.
Is the Mortgage and Remortgage option possible for people in debt?
The general rule is that you must have a good/excellent credit score to secure a mortgage deal.
There are mortgage brokers who could find lenders to offer new mortgage deals to people who have a poor credit score.
Please ask our expert mortgage advisor to discuss your personal case.
We can assess, how you could save a new mortgage deal or get reduced your current payment on a mortgage.
There are several mortgage lenders who cater to borrowers who had financial problems in the past.
It is a combination of good credit, high equity and regular secure income to demonstrate you can meet the repayments for suitable and good mortgage rates and deals in the market.
A mortgage lender can consider you for the mortgage if you are the informal debt solution
Kindly note, you (The debt solution client) should not be a part of a formal debt solution plan i.e Bankruptcy, an IVA or DRO.
It is likely that no mortgage lender will offer you new mortgage lending when your formal debt plan is in place. But this doesn’t stop those who don’t fit into this category from also being able to find a mortgage they can afford.
Mortgage Lenders who consider a poor credit application
There is a range of mortgage lenders that specifically cater to borrowers who have suffered financial problems in the past.
Some of the mortgage lenders are there to consider your application. The most well-known of them are Kensington Mortgages, Precise Mortgages, Together and few smaller building societies.
Most of these creditors do require a certain amount of time to have passed since you had financial problems and defaults, with many, require this to be from one year to three years.
Consideration of your mortgage options and determining factors
As a client, if your financial problem was due to your job loss or sudden health reasons. You can show that you have put measures to rectify the situation, many of these lenders will consider your position and previous poor credit scoring.
It is suggested to use a mortgage advisor who specializes in helping borrowers with poor credit scores.
Your mortgage advisor will have access to suitable and appropriate lenders to suit your needs.
There are some other factors and specific circumstances which could make more sense towards your mortgage/remortgage or equity release option.
These factors are your age, size of deposit money, your existing equity, your current employment, income proofs. There are additional factors, including your personal savings i.e. ISA and pension income etc.
One potential option is to remortgage with a further advance with your existing lender to release equity from your home. You may use these funds to repay the credit card and personal loans debts.
It could resolve your debt problems quicker than any debt solution plan.
Un-regulated Financial Products Availability
Alternatively, it might be an option to take a second charge at a slightly higher rate than your existing mortgage and use this to repay the debt.
This option is quite popular in current times when there are various financial companies who are offering second charge loans as it is an unregulated product in the UK.
You should be very careful and must seek independent financial advice before you opt for the second charge option.
It may cost more each month to repay such a loan over a time period.
A good and independent mortgage broker with experience in debt solutions and mortgages is a must for you to get the best possible outcome.
In my opinion, it is likely to secure a mortgage deal if you have experienced debt problems.
It is likely that your interest rates may be higher than a high street lender. The mortgage product will be sourced from top lenders of the whole of the UK market.
Your options depend on the type of debt problems/defaults, you have had and how recently you have had them.
Your new mortgage lender might ask for detailed explanations/checks for you and can ask your mortgage advisor about your previous debt problems.
It is to ensure if you are a consistent payment defaulter on your credit commitments in the past and present years.
Pay off your default accounts early
A default occurs when an account has had consecutive missed payments on credit commitments. Once recorded, it will remain on your credit report for six years from the default date.
If you are able to pay off the default, the lender will show this as satisfied on your credit record.
You will have more options if the defaults in your name are satisfied or partially satisfied.
Rajnish Tyagi is an experienced and Cert DR qualified debt advisor.
He works for Acme Credit Consultants Ltd, which specializes in offering suitable debt solutions to clients.
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