Bad Credit Mortgage Availability Following Defaults and a Debt Management Plan
The economic situation still looks fairly bleak with theUK having officially entered a double dip recession and with austerity measures also kicking in, it means that the average household will have less disposable income and may struggle to maintain existing mortgage and unsecured loan and credit card commitments. The specialist bad credit mortgages currently on offer are only aimed at those borrowers with historic adverse credit histories (typically CCJs and Defaults registered at least over 2 years ago) where there has been a willingness to satisfy these historic debts so anybody getting into difficulty now could have significant problems getting a mortgage in the next few years.
In the past, there was a huge influx of debt management firms that recommended looking at freezing interest on unsecured credit agreements and agreed significantly reduced monthly payments until the debts were repaid or there were even Companies ‘buying the debts’ at a significantly reduced percentage in the pound and being able to advertise that they could reduce any unsecured debts by up to half. Unfortunately this was a double edged sword and as soon as debt management agreements were mentioned to creditors, they immediately issued a default notice against the borrower and in the current lending climate, there is an extremely restricted choice of lenders that may be willing to lend to any potential mortgage borrower.
An important lesson to learn within the bad credit mortgage market at the moment is that the majority of lenders will not allow an applicant to be party to any form of debt management agreement and they are treating a debt management plan very much in the same way as if the client was a bankrupt or in an IVA. Unfortunately, unless there is a huge deposit available, it will result in an instant decline. Understandably, the Financial Services Authority has put pressure on lenders to assess affordability both now and in the future in relation to any mortgage commitment and the reasoning is that if a borrower cannot afford existing commitments then how can they take on any new commitments?
Another argument is that the debt management agreement is a temporary arrangement and can be changed at any time if the lender is unhappy with the reduced payments so potentially the borrower could be liable for the increased contractual payment. Based on the majority of lender’s affordability calculations, all these commitments at the usual payment amount would result in the requested mortgage being unaffordable and being declined on this basis.
Bizarrely though, the bad credit mortgage lenders only seem to have a problem if the applicant has got a formal agreement with the likes of CCCS, Payplan, Gregory Pennington or one of the other Debt Management Companies whereas if the applicant had defaulted on credit agreements over 2-3 years ago but had an agreement with the Company to pay it back at £5 per month for example then this is considered acceptable!
We strongly recommend that you contact Mosaic Mortgages to discuss your specific circumstances and to see whether you are eligible for the various bad credit mortgage schemes that we have access to. As we are offering whole of market advice, we will assess your individual circumstances and recommend the most appropriate bad credit mortgage for your needs. If we can’t help you now then we will give you advice on an action plan to ensure that you will be able to get a mortgage in the future.