Mr Burrell was keen to buy his first home, as he had saved for a deposit for 3 years and waited a further 2 years throughout the covid pandemic.
However, he realised that he had a default on his credit report from a bill that he had forgotten to change the address for when he moved, which resulted in the default that was causing the declines.
The client had applied for the first mortgage without being aware of the outstanding default on his credit report. He then approached another broker, only to receive the same outcome.
Upon obtaining a copy of his credit report, the client realised that he had an outstanding default. The other broker informed him that it would not be possible to secure a mortgage with the outstanding default, given the amount of deposit the client had available. Instead, the broker suggested an adverse lender with an interest rate of 6.7% and high fees.
The client intended to purchase a property priced at £200,000 with a £27,000 deposit, resulting in an 87% loan-to-value (LTV) ratio. However, with the option presented by the other broker, the mortgage payments would amount to £1,116 over a 30-year term.
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We shared the same opinion as the other broker that securing a mortgage with an outstanding default would be challenging or expensive. Therefore, we presented the client with the same adverse option but advised them that repaying the £459 default would open up more options, as would saving up for a 15% deposit.
The client already had 13.5% saved, and we suggested they use the time it would take for the default to be removed from their credit file to save up the additional deposit. We proceeded to apply for the adverse deal so that the client would have something secured, considering that the property was part of a long chain and the client had time on their side.
After 9 weeks, the sale was still progressing, and the client had managed to save up a 15% deposit while the default was showing as satisfied on their credit file. We were able to place the case with a high street lender at 4.4% with monthly payments of £851, resulting in a savings of £265 per month for the next 5 years, amounting to a total savings of £15,900. Needless to say, the customer was over the moon with the outcome.
While this particular customer had a generally good credit profile with only one blip, it’s important to note that not all customers may have the same situation.
However, this case serves as a valuable example of how thinking outside the box and making adjustments, such as tweaking the deposit amount or timing the mortgage application strategically, can make a significant difference. It emphasises the importance of considering various options and being patient for the right moment to apply, as it can result in favourable outcomes.