Posted on 25 April 2016 by Adam
"My wife and I are looking for a mortgage to the amount of £135,000.Her credit report is good although a low score of 700 (Experian).She has no debt and only one credit card that gets paid in full every month. She does not work as we have a baby and only claims child benefit of £80 per month. I am in full time employment in the army. My credit score is 666, so poor. I have 2 (paid off) defaults registered in 2013. All debts are now paid off in full and we have a deposit of £35,000.I'm pretty sure the defaults will ensure we're laughed out of the high street banks, however I was hoping you could give some advice. Thank you in advance."
Thank you for your query submitted on our website.
You have a reasonably good salary of £36,000, and it is unfortunate you got into financial difficulty in the past. I think it would be a good idea to check the status of the 2 defaults with Experian or other credit agencies as this will give me a clearer picture of which lenders we could approach for a mortgage. It’s very important to be able confirm to a lender before application when you formally settled the defaults.
On a positive note, you have a deposit of £35,000 and are looking to borrow £135,000 which is less than 3x salary, so affordability permitted this transaction may be feasible,(subject to when the defaults were formally settled). Ideally you should have at least 25% deposit or more as 80% LTV choices may be limited with an adverse credit history.
There are some lenders who would consider child benefit in addition to earned income when assessing affordability for a mortgage. There are some high street lenders who would take 100% of this form of benefit income whilst others would cap it at 60%. However, it's important to remember that you would also need to factor in buying costs such as solicitor’s fees, stamp duty and agent fees if this is a purchase. For remortgage cases, lenders usually offer free valuation and free legal services so the cost is reduced. However, you may have to pay an arrangement fee to the lender for the mortgage product, this may be added to your loan subject to LTV.
As an Independent broker we have access to a wide range lenders including those that still manually underwrite cases and can therefore judge each application on its individual merits and would suggest you call us so we can discuss the best way forward.
Answers provided in response to Ask the experts are based on the information provided and do not constitute advice under the Financial Services & Markets Act. They reflect the personal views of the authors and do not necessarily represent the views, positions, strategies or opinions of John Charcol. All comments are made in good faith, and John Charcol will not accept liability for them.
We recommend you seek professional advice with regard to any of these topics where appropriate.