Will partner’s default scupper our mortgage chances?

Dear James,

My partner has a poor credit score due to falling behind on credit card payments when he was out of a job and the account had defaulted. We are currently trying to find a mortgage but because of this we cannot seem to get one. Would paying the remainder of the account in full help with his credit and possibly be accepted for a mortgage?

Kirsty, Barry

Dear Kirsty,

Lenders are under mounting pressure to make sure mortgage applicants can afford their loans - both now and in the future should interest rates eventually rise. In fact, the Bank of England has just announced more tough rules to limit the number of ‘risky loans’ lenders will be allowed to provide. So it’s vital that anyone planning to apply for a mortgage in the future takes whatever steps they can to make their application as attractive as possible to a potential lender. One obvious challenge is setting your sights on a property you can realistically afford, particularly as fewer mortgages are likely to be available going forwards at high loan-to-income ratios. So saving up a decent deposit and aiming for a sensible property price will put you in a strong starting position. Lenders will also scrutinise your income and outgoings, perhaps more closely now following recently tightened lending rules. And in this respect, having existing outstanding debt, such as the credit card you mention, is likely to erode the lender’s view of what additional borrowing it thinks you can manage. The lender will also pour over both of your credit histories very carefully. Many are now setting a high credit scoring test. Past missed payments or defaults are therefore likely to be a challenge because these will often put a major dent in any score a lender calculates. With that in mind, my advice is as follows. Pay the credit card bill off as soon as possible and get your partner to check his credit report to make sure this is quickly updated. He should also consider adding a note to his report to explain that the debt was caused by redundancy. Any future lender will see this when they check his report and it could help your cause. Review both of your credit reports closely and use our 'How to improve your credit rating' advice to see if you can make further positive changes. You should also think about finding a good, independent, whole-of-market mortgage broker - see if friends, family or colleagues can recommend one. A broker will review your financial circumstances and your credit history and then help you choose a mortgage deal you’re likely to be accepted for based on your personal circumstances, when the time is right for you to apply. Good luck. (November 2012)

James
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