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?

I would move the lounge to the largest bedroom upstairs and sPlit the lounge into two rooms

I had friends go through similar and they bought a really good sofa bed and the parents slept in the lounge for two years. Not ideal but much better than selling your house. I think selling and going into rental should be the last choice.

Do you have a loft/attic that could be converted to a bedroom? A garden/yard that could accomodate an extension?

What are the dimensions of the bedroom OP?

Where's the OP going to get the money to do either of those?

When necessary I’d split bed 1 for the kids down the middle with a screen/ light partition wall which can be fixed onto the ceiling. Yes it would go across the middle of the window but it would be workable and you could remove it when you come to sell. But I do think you’ve definitely got a couple of years before this is really necessary.

Split the front bedroom into two. Window each. They'll be small (10ft x 6ft?) but with cabin beds should be ok.

What about something like this to the right of the door to bed 1- you could get a local carpenter to do something similar for not too much money I’d imagine.

Your credit score won’t improve enough in six months anyway it’s very slow to build-
the most points I’ve ever gained in a month is about 102 on clearscore.
If you do want to sell then do it now as the worse case scenario is it will take ages to sell and you’ll be left no house, debts anyway and stuck renting which is money down the drain.
giving yourself only 6 months to sell is pushing it and unessesary stress.
sorry I can’t advise more xxx

If you've got equity int he house why don't you see how much you could release and do a lift conversion?

*loft!

Don't sell your house OP - you'll never get back on the property ladder in the current market...

Loft conversions are really expensive now since lockdown and lots of new builds have roofs that are unsuitable for doing one.

Not a good idea.

If you and your partner have a poor credit rating you will find it hard to find anywhere to rent so I would hang on to your small house.

Try maybe to improve your financial situation instead. I would look for a job (there are many remote working opportunities these days) for example.

I think you're right about staying put. Owning your home (even if not perfect) is more stability for the children than a larger rental; and there are a lot of risks with renting with a poor credit score.

When was the last time that you really sat down with your finances and looked at them in detail? I know that you've said that clearing the DMP in 18 months isn't possible but could you do it in 2 years if you really pushed? Earning a bit extra, saving a bit more, asking for a raise at work, cutting costs, stopping paying for expensive subscriptions etc.

If you could pay off the DMP in two years, and then save hard for the next 2 years, putting the DMP amount into savings, you'd end up with around 18k in savings which you could add to your equity to change up to a 3-bed before the kids hit puberty.

OP, please research this fully but I used to be a credit underwriter with access to credit reports as part of my role and IVAs etc stay in your credit file for 6 years after completion. Yes, they'll show as paid, but almost all lenders used to (and in the current environment I'd be surprised if this has changed) have an almost blanket decline rule in place for any of these on someone's credit report, completed or otherwise. You need to check but the link I provide below for the largest credit reference form in the UK suggests that 6 years is from default dates or DMP completion, not from the date you entered the DMP. If you think about it, this makes sense as right now you are still behind on your debt payments, DMP or not, this is recorded on file and everything on your file remains for 6 years.

Remember as well, a DMP doesn't protect you from your debts defaulting, so you may find that some of your debts defaulted some time after your DMP started so the 6 years may not necessarily be 4.5 years in for each account. Lots of debt agencies will claim they avoid defaults etc but they're being economical with the truth as it's not a given at all.

The following link may be useful but I'd be very surprised if your credit report looks rosy in 18 months time I'm afraid.

www.experian.co.uk/consumer/guides/debt-management-plan.html

@Jimboscott0115 thank you for that input it's really helpful. I will check the details on that link provided too.

@Greenfairydust I do work, I just work 30
Hours per week instead of full time as I work in a school.

Moving doesn’t sound like a good idea to be honest, I would stay and try and adapt it as best you can.

If bedrooms are too small to split I would probably adapt the lounge so it can be used at night as a bedroom. If sofabeds are too difficult with your back could you maybe look at a sofa wallbed. They have a proper mattress so might be more suitable. They’re quite expensive, but would be cheaper than other options.

No problem at all, I hope it all works out and happy to answer any questions on terminology etc .

My exh grew up in a house with 4 dc sharing a room. Yours could quite easily share the bigger bedroom with some careful planning - I like the kallax idea, bunks with desks under to free up floor space etc.

Don't sell your house op.

@Jimboscott0115 , this is purely out of interest but does this mean that to improve your credit rating after a DMP you are looking at the best part of a decade?

So if I have understood this correctly, if someone took a DMP lasting five years out today that would be over at the start of 2028, but then six years from then it would come off their report, so 2034? Have I got that right?

I know this is a shit answer but it depends on various factors. Some DMPs still involve meeting the payments needed and therefore the debt is paid in full at the end so it's generally pretty good when the plan finishes. Some DMPs, depending on the lenders etc may result in a default almost immediately on the debt, again it sounds counter productive but this is a good thing as six years after the default they drop off the file.

Unfortunately though, the scenario you mention is also feasible depending on amount being paid, term of the plan and whether a default is issued by the lender.

It's all a bit woolly I'm afraid as it's need someone's credit file to even start to decipher. I'd always recommend getting a free report from somewhere like clearascore and then maybe getting an appointment with the CAB to run through it in detail. I also worked in collections at the bank I worked for and regularly gave this advice.

I've been where you are. Honestly, keep your house. Move into the sitting room and give the kids the bedrooms.

Would something like this work in bedroom 1 - you could probably diy it, possibly with a sliding door/ door opening out to maximise space in the room? Then some sort of divider - curtain or something so they get some privacy. Or decent sofa bed and you sleep downstairs? I think that you can leave them sharing for another couple of years even without adaptations as long as they don't fight.

What is in the storage in front bedroom? If not hot water tank, I would remove this and split the room into 2 small box rooms with a window each. Or you could try using a bunk bed as a makeshift room divider - each bed accessible from one side of room only, kind of like a S shape?