Please help - no idea what to do re default

[Didnotseethiscoming25]

Hi mumsnet really hoping you lovely people might have some advice for me, I have name changed because it's all a bit dire, I'll try to be brief

Currently trying to explore options to borrow some money to do much needed renovations at our house. Spoke to a mortgage advisor who said our affordability looks great but maybe our current mortgage lender could give us some additional borrowing.

Spoke to current lender, flying through the call all good good good, then the call handler went to do some final checks and came back with a very short 'there is adverse activity on your partners credit file we can't help bye'

Got up Experian and could see a default from 2023.

Partner had not properly understood a conversation with his bank around this time and had essentially agreed he was in difficulty and couldn't make his loan repayments so they were reduced - hence the default.

Now I'm spiralling because we can't borrow additional funds but also our mortgage is up for renewal next year and we will not be able to access best rates

Is this correct thinking -
Default will remain for 6 years whatever happens
If the loan is repaid now it will show as a settled default
We may be able to offer slightly less than the outstanding amount (we have some savings towards renovations) to settle the loan
If we don't pay it all off before the 6 years then the debt could be sold and he could end up with a CCJ
Maybe if we settle the debt by the time we need to remortgage next summer our credit report might look better (although appreciate default will not disappear)

What am I missing? I feel sick all our plans are just completely up in the air thanks so much if you read this or reply

How much is it for? Is he still paying the reduced amount? It might worth speaking to the bank to query and understand what it would take to either bring the account up to date or settle the default.

with regards to access to more credit, that will probably depend on the amount of the default and overall profile. He could put a note on his credit file to explain the circumstances and how his circumstances changed so no longer lacks means to pay etc. if it’s a large amount he’ll probably be too much of a risk.

For the mortgage renewal you'll just have to stay with your current provider.. but you'll still be able to negotiate a new rate, they won't credit score you for this unless you want to add extra or change the term. The default does usually hang around for 6 years though. Unless you can request it be removed if you have sufficient grounds which it doesn't sound like you do. Can you get a home improvement loan in your own name for the renovations?

Default will remain for 6 years whatever happens
Yes

If the loan is repaid now it will show as a settled default
Yes. Different credit reference agencies will report it slightly differently - as settled or satisfied. But essentially, it will be clear to lenders that you have a default and it's since been paid off in full.

We may be able to offer slightly less than the outstanding amount (we have some savings towards renovations) to settle the loan
You can do this - but the fact that a settlement offer was agreed rather than paying the defaulted amount in full will also be recorded at Credit Reference Agencies, which some lenders may look unfavourably on. Realistically though, the difference will be small. It's the default itself which is the main issue, paid or not.

If we don't pay it all off before the 6 years then the debt could be sold and he could end up with a CCJ
No. Unless the debt is statute barred - you've not repaid or acknowledged it for 6 years - there's no cut off timescale for a CCJ to be pursued. Whether the default still reports to credit agencies is irrelevant. The default could have passed 6 years and been removed and the lender could still pursue a CCJ even then - for as long as a balance remains owed, this is possible and it could occur at any time, next month or in ten years.
In reality, a CCJ is very unlikely unless you stop cooperating or paying. I work very closely with debt collection departments in a number of financial institutions and they just don't bother with CCJ's except for those that refuse to engage. If you make a payment arrangement and stick to it, even for a token amount, it's unlikely a CCJ would be pursued.

Maybe if we settle the debt by the time we need to remortgage next summer our credit report might look better (although appreciate default will not disappear)
The difference in paying off or not paying off a default makes little difference to your credit report. The only thing that will heal it is time - the impact of a default lessens over time, with each passing year.

Thanks so much everyone I really appreciate the replies I am no expert in this area. The amount is c.20k - do you think that makes it a significant amount of money? (Sorry I know 20k is a lot of money I just don't know if it would be seen as huge to a lender)

Thats a good idea about the home improvement loan although I would be looking for at least 100k so not sure how likely but I will look

Thanks for the advice re ccjs that really panicked me - and the difference between settling and paying in full

Such a shame I really don't think my DP realised what they were agreeing to (although I don't doubt it was explained to him I just think maybe it gets lost in official/bank speak)

£20k is a lot, yes. Really you should clear that before thinking about borrowing more money, especially as there’s a default.

Okay thank you so much - will speak to the bank tomorrow to see what settlement is possible

If you're struggling to repay a £20k loan, such that you're not making full payments, how would you be able to make the payments on a £100k loan secured on your property? That's how the bank is looking at your situation.

The other question for the additional borrowing, and for when your mortgage is up for renewal, is how much equity you have, are you able to borrow this amount and stay within LTV limits?

@Bjorkdidit yes you are right that is a very good point as to how lenders will view the situation

The LTV even with the extra borrowing is fine, not going past 80% and our affordability is good but obviously the default has put a big question mark over everything. My broker just suggested maybe just putting it all in my sole name until the default is clear so fingers crossed that might be an option