To sell my house to sort out my credit score

[dinosandprincesses]

Ok so this probably sounds like I definitely am being unreasonable but please hear me out first.

We currently live I. A very small two bedroom house, DC share a room but this will soon become an issue as they are different genders and will want their own privacy etc. When we first had the DC we got in to a lot of financial difficulties due to my DH being laid off work unexpectedly and me being a SAHM (I was looking for work but due to childcare arrangements it was almost impossible). We ended up combining all the debts in to a DMP which has worked well for the past 4 years.

Now the issue is that we need a bigger house. We desperately want to pay off our debts but feel like we aren't even making a dent in it. With the DMP we have been told that it will affect our credit rating for 6 years. Which means we have roughly 18 months to pay it off before it then gets added for another 6 years. We have approx £14k in debt so paying it off in 18 months isn't an option.

The only way that we can see around this at the moment is to put the house on the market in 12 months time. We have approx £60k of equity in the house (possibly less if house prices keep dropping). The plan would be to sell the house, use £14k of the equity to clear the debts (it should be slightly less than this by then). We would then find a property to rent for 6/12 months whilst we built up our credit ratings again from scratch. We can just about afford to pay rental prices but would hope this would only be a temporary thing anyway. Then when our credit rating has improved we would apply for a new mortgage, which hopefully we would get approved on as we would have a pretty good deposit.

Does this sound like a fairly reasonable plan?

Can’t you just remortgage and take some of the money out to nosy the debt? And make sure that you can port the mortgage?

Just checking - you mean you took the debt management plan out four and half years ago yes?

I’d double check that it doesn’t stay in credit rating for six years from end of the plan

when you re-buy are you planning to move to cheaper area? I’m not sure you’ll be able to restore Credit rating, lose some equity and buy a bigger place/bigger mortgage six months later.

It's six years from the end of the plan, I believe. Or, it certainly has been for my mum's IVA. And nobody will touch her now, even though she's paid off the IVA in full almost a year ago. She can't get a fixed rate on her mortgage so is having to pay variable.

Surely you could just release £14k of equity to clear the debt now, then reassess when in a better position? At least you're not taking a step off the property ladder.

Yes it was taken out 4 1/2 years ago. It says it will still be on the rating but will be shown as payed in full if we pay it off by the 6 years. Unfortunately the mortgage company won't let us pull it out of our existing mortgage by remortgaging because of our credit ratings being so bad, we don't pass the criteria

@TotallyWhatever yes we would be moving to a slightly cheaper area.

@TokenGinger that would be our ideal option but we don't pass the credit checks for remortgaging.

"Which means we have roughly 18 months to pay it off before it then gets added for another 6 years."
I don't understand this bit. Bad credit marks remain on your credit record for 6 years from when you accrue the bad credit. So for example, I was also in financial difficulty and defaulted on a credit card. The debt was passed from the credit card to another company and I pay them a fixed amount per month. That went on my credit record and after 6 years it disappeared even though I still make monthly payments now.
So paying off your debts early won't affect that mark on your credit record. Your 6 years will be from when your DMP began.

It is an advantage to pay off your debts earlier to stop them building in interest and to make you look more attractive to mortgage lenders however.

I would be wary of selling your home and moving into renting. If I was you I would either remortgage to pay off the debts, or I would rent out your own house and rent another for yourself somewhere cheaper so you benefit financially until you are able to sell/buy another.

@Adultchildofelderlyparents so if we are still paying the DMP in 2 years time it won't be added to our file for another 6 years? I was under the impression it kept renewing for 6 years until the debt had been paid in full.

Are you both working at the moment?

You might want to check this because I see other comments saying the opposite. But it was certainly the case for me that my bad credit went off my credit score after 6 years even though I was still actually paying off the debt. Still paying one debt off now 8 years later but have had an excellent credit score for the past two years.

Yes we are, although I don't earn as much now as I did when we took the mortgage out because I only work 30 hours a week (school hours to fit around kids)

@Adultchildofelderlyparents ahh if this is right then that's basically solved my conundrum! . That would mean we could do everything else we can over the next 18 months to improve our credit rating and then it should get much better when that 18 months is over and the DMP no longer shows on our account!

I'd do everything you can to keep the house otherwise realistically you may not be able to get back on the housing ladder for many years.

with so many couple going for each house rental - how would you be able not rent? Once your credit rating is seen, your not going to be the favourite for any rental properties - so where will you live?

Selling th house you are in has to be the worst thing you can do. You'd be better setting up your living room as a bedroom and letting the children have the two bedrooms. or finding another solution, but selling up will no doubt end in much more problems than you have now

You are on the housing ladder. Stay on it.
If you sell you’ll be throwing away dead money in rentals

You know what your doing at the moment and Im afraid I would stay where you are and clear off the debt. ONLY when you are able to save money for deposit for a bigger home
If you need 3 beds chances are that you will need to rent a 3 bedder too
Theres always a solution for sharing a room
Please think carefully about selling .. stepping back onto that housing ladder is going to be so difficult and I feel you may live to regret it

With a DMP, the impact on your credit rating is 6 years from the date of each separate default notice before it's removed. With it being an informal arrangement there's no guarantee of when your creditors will have added this. So it's worth checking credit report to see if they already have.

for IVAs and other insolvency options it's 6 years from the date you are registered on the insolvency register.

@NancyVicious that could be an issue actually because we do get the occasional default notice sent through randomly from some of the debtors. When we contact them to ask about it they just say it can occasionally happen with a DMP so I will need to check that out.

I think best to go to the citizens advice for proper advice.
But also try to have the most frugal year possible, have a clear out and sell stuff, look for a side hussle, put every penny you can into that final £14K. Aside from anything else, your mental health will improve significantly when you are free of the debt.

Agree with this. You risk ending up stuck renting and being in a much worse place financially. Your credit score will be okay in 18 months (6yrs from the start of your DMP) - just keep to the plan and keep paying the debt down, and whatever you can to make your current house work for you.

If you haven’t defaulted on your loans the the dmp will stay in your file for six years after you have paid it off. I had a friend that had this issue and despite having a substantial deposit could not get a mortgage until the dmp came off. You could be stuck renting for much longer than you think and then may have an issue that you can’t buy the bigger house due to increase in prices

Sign up to credit karma or something similar and look at both of your credit files in detail for all of the accounts you have on the dmp. Everything stays on for a rolling 6 year period on a credit file so basically 6 years after the last late payment, default or reduced payment is when your credit file will be clear again, it doesn't keep renewing every 6 years thats not right.
In a dmp its really important to get the creditors to default you as soon as possible, as the account will drop off your credit file 6 years after the default date even if its not fully settled (you still need to pay the rest though)- so check every one of your accounts and if they haven't defaulted you and are just marking it as a late or reduced payment then complain and ask them to backdate a default to 6 months after you started paying reduced amounts.
Join the forum on the Money Saving Expert site called Debt Free Wanabee, there is a DMP board where you will get expert advice on any letters you need to send etc if you haven't been defaulted. Once you check everything is defaulted, 6 years and one month after your last default date is the date your credit file will be fixed. You would be able to get some unsecured credit around 5 years after but wont get a good mortgage rate until they are all off.

Dont sell your house - your mortgage will do a good job of helping to repair your credit

I’m in a DMP. It is 6 years from the date the default is first registered. It’s doesn’t renew and you will continue to be sent default notices every 6 months or so until paid back. This doesn’t restart the default period. So once you hit 6 years they should start falling off your credit score

How will you rent if your credit is so bad?

I wouldn't take myself off the property ladder. Seems risky. Can't you move into the sitting room if your kids need a bedroom each?