What should we do to get a mortgage? And how hopeless is it?

[JaneS]

DP and I are renting at the moment and getting really fed up - we've moved three times in the last 18 months and both the last places gave us notice before our tenancy was up (legally, but it's still annoying).

I am on a PhD grant (roughly equivalent to minimum wage as I don't pay taxes). He is on 900 per month. We both have student debt; mine is a student loan, which I don't have to pay off until I'm earning at least 15k. His is a private loan of 14k, which he pays £50 per month towards (mutually agreed). At the moment we rent, and our place is 660 pcm. I have some savings since my granny died, but my PhD grant doesn't cover the costs for doing the PhD, so I do use the savings as well.

When I graduate, I want to be in the best possible position to get a mortgage. How unrealistic is that? And what is a starter mortgage? I want to get a sense of how far away we are from realistically being able to get one. Any ideas?

Btw, as you can tell, I am pretty ignorant about how it all works and useless at finances. I don't do credit cards any more as I feel nervous about them, so I don't think I have a credit rating.

Hi LRD. As a rule of thumb, you will normally need a deposit of at least 10% when looking at trying to find a mortgage, plus all the associated buying costs - solicitors, stamp duty etc.

On a plus side, many lenders these days work out how much they are prepared to lend on an affordability basis rather than income multiples. This may (or may not) work in your favour.

You say that DP is paying off a private loan at a mutually agreed rate. Does this mean the repayments are lower than they would be normally and this is down to the lender happy to receive something rather than DP defaulting on the loan ? If so, it won't do his credit rating much good until the loan is paid off and consequently, if you are looking to buy in joint names, won't help find a mortgage overall.

You will have a credit rating regardless, though may not have much on it. Ridiculous as it may sound, it would improve your credit rating if you did have a credit card and say used it once a month and paid it off each month, but you must be good and make sure you didn't start to build up a debt.

There are alternative mortgage products around which involve sharing the equity on a home with other organisations. This usually applies to first time buyers or those working in essential services type jobs such as teaching and nursing.

By the sounds of things though, the main issue will probably be trying to build up sufficient savings for a decent deposit.

Thanks for replying!

DP's repayments are purely based on what he can afford - the lender is being very kind. I guess it's not good for his credit though. But the loan is interest-free I believe, so he is getting through it slowly.

I might do that with the credit card.

I have a little for a deposit - it's around 8k at the moment. I think my parents might help out with a deposit but I'm not sure how I feel about that. My dad keeps saying it is better to give us money now that pay when he dies but, obviously, I don't really want to think about it like that as he's only 60 and I'm hoping for another 20 + years.

With my student loan, will it count against me that I'm not paying it off? I don't have to yet but is it bad not to?

Sorry to answer your helpful advice with more questions - I am sure it's one of these things that seems very simple when you've done it!

Sounds like DP has an informal 'Individual Voluntary Arrangement' (IVA) and unfortunately it will effect his credit rating and by association, maybe yours as well.

I believe that parents are quite frequently the source of mortgage deposits for their children, so assuming they won't miss the money, I wouldn't worry too much about 'borrowing' from them.

As there is no obligation to start paying off your student loan yet, it certainly shouldn't be held against you that you aren't making payments. Lenders will be used to the arrangement. I am sorry though, I don't know how they are treated when actually applying for a mortgage.

The annoying thing at the moment is that a mortgage would probably be less cost than the rent you are paying.

Actually, that's not annoying at all. It cheers me up because I'm getting some sense of perspective on it all.

But would DP be better off with debt from a bank? And why? This way he doesn't have interest piling up on him, so I thought this was relatively 'good' debt to have?

The fact that interest is not being added is good in that each payment goes to reducing the debt. However, at this rate it is going to take nearly 23 years to clear it !

The debt will be classified as 'unsatisfied' or something like that. A prospective lender will check the credit scoring agencies such as Experian and see a debt that has been defaulted on regardless of the IVA in place. Even when the debt is settled, it will still show on the Experian report for six years I believe. A slight positive is that after paying what he can for about three years, the lender might agree to settle the debt for a lesser amount than what is outstanding, normally about 2/3rds, assuming he would be in a position to come to that sort of arrangement.

Sorry, but it is unlikely that a bank will lend money to pay off a loan that has been defaulted on.

When I first applied for a mortgage I had a student loan, and was told by the bank that they didnt take student loans into account, because of the fact that there was a minimum earnings threhold before you paid it back, and also because the interest rates were so low. That was about 12 years ago though, so things may have changed.

I'm sorry, I am really stupid - what does 'defaulted' mean?

Btw, we are hoping (I know, I know ...) that he will soon be able to afford to pay more off. He only started work a year ago and he's been promoted twice, but he started at minimum wage and he pays more tax than usual (non-UK resident), so it takes a while. Would we be more sensible to try and pay off this loan asap then save for a deposit, or try to do both gradually?

Btw, thanks so much for your patience and advice!

Thanks BigStripey. I think the loan interest goes up this September, so that may change, but I'll check.

if he has come to arrangement to pay back at £50 a month he presumably isn't paying it off at the rate originally agreed ie has defaulted by not paying the full amount.

Ah, I see. Yes, that's true.

Basically, he couldn't afford to pay fees for his last year of university and was told he could treat it as a loan instead. It is all a bit confusing and off-the-cuff, but it as if that had better be the priority.

Sorry. I meant to type 'it looks as if that had better be the priority'.

We earn about £36,000 between us and can't get a mortgage because we have no deposit. Saving up for that is our priority as neither of us have any financial help from family. Student loans still don't count though.
Schemes to help key workers - teachers, nurses etc are dying out it would seem. We were on the list for one last year but it ran out of money and said that it wouldn't be renewed.

Sorry about that mizu.

I don't think we are any worse off than my little brother who bought a house in 2007 with a £5000 deposit. He has been paying interest only for 3 years and can't afford to pay anymore. They would quite like to move now but probably won't be able to.

with a IVA you will struggle I am afraid, and if you did manage to fond a bank willing to lend you will be offered a stupidly high interest rate, which will make it pointless.

The days of free money are gone, banks (though they deny it) are being gits when it comes to lending, when we moved we have a perfect credit check a 45% deposit and still the underwriter was a asshole, every time we done what he asked he wanted more.

I am surprised they did not tell you about the affect a IVA has on credit rating, or friends went that route and they struggled to find anywhere to rent let alone buy as all rental agencies do Credit checks as well. they got turned down about 4 times and they only finally got one by providing references galore.

'I am surprised they did not tell you about the affect a IVA has on credit rating'

'They' who, Aeschylus? It's a private loan, would they necessarily know that?

I am a bit confused about this.

LRD, are you able to say who DP's loan is actually with ? Is it with a regular lender or has he come to an arrangement with the university ?

I highly recommend DP sends off for an Experian report to check his credit rating because of the loan. You can apply online and it only costs £2.

You might want to do the same yourself to see whether DP's debt also shows on your report. This it might do because you are co-habiting. You will then see what a prospective lender will see about you.

Mind you, you might need your PhD to decipher it !

I will say, ok. It's his college, they realized that lots of their students were struggling in the final years of the degree when the recession hit, so they came to individual agreements to hold off asking for fees until people graduated and got jobs. DP had a long wait to get a job because he is foreign and had to get a work permit (this took about 9 months - the Home Office are not my favourite people). The bursar at the college said 50 quid might be a good sum to start paying off to see how our finances were, and they're planning to up it to 100 in a bit if that works ok.

Thanks for the tip about Experian. I might come back here for help if it's complicated though! I am useless with numbers.

Thanks so much for talking me through all this, feel that I understand things a lot better now.