This case is a perfect example of a complex bad credit application in a forever changing bad credit mortgage market and how perseverance by a good broker really pays off.
We spoke to a gentleman who has a business which has some debts that have large monthly repayments. The debts have come about due to a downturn in the business which was caused following an upgrade on the business website.
However, the website works done meant our clients’ business site lost its placing on Google and in turn new business levels dropped significantly. The applicant carried on paying himself his normal wage expecting it to jump back up after a couple of weeks.
However, the situation carried on longer than expected and so the applicant needed to take out more debt, in the name of the business, in order to carry on trading.
As time has gone on the business has more or less recovered now but it has taken on a significant amount of debt which needs servicing each month. Because of that debt, although turnover is back to where it was, there is no profit due to the servicing of the debt. Given the current economic climate this is sadly an all too common occurrence.
Technically the applicant owes money to the business and the business in turn owes money to the banks, so if the applicant can pay that money back, the business in turn can repay the debts and then profits start to increase again.
The problem here however is that most Mortgage lenders will see that there is no profit and so in turn will not lend. This catch 22 situation, with no new mortgage because of no profit and likewise no profit because of the debts that would be cleared if he had a new mortgage, is quite the proverbial catch 22.
Added to this complex case is that the applicant is also in a Debt Management Plan (DMP) which has been running for a while. However, the plan has been paid every month without fail.
With such a complex case, as you might expect, meant the options were very limited.
What did Mortgage Success do?
Bad Credit mortgages and bad credit remortgages are our bread and butter but as there were other issues to this complex case, not least the business debts we knew this case was not going to be easy. But we persevered.
We researched the market and spoke to a number of lenders and we also picked the brains of other brokers we know, as our options for the client were very limited.
The 2 issues we were coming up against were:
- The Debt Management Plan,
- Raising money in order to pay off business debts – albeit this was a technicality as it was the customer who owed the money.
After a couple of days, we managed to put the options together and talk them through with the customer. One option was a conventional Mortgage and the other was a secured loan for the amount needed which would sit behind his current mortgage.
The customer decided the secured loan was not what he wanted and so we pressed on with the Mortgage application.
After a week, it became apparent that the underwriter was not happy to accept the application as they were not happy with the situation as a whole. This then left us with the secured loan option to pursue… This however, was then also declined by the lender!
Bad Credit Mortgages Market Changes Daily
Thankfully in the meantime of submitting these 2 applications another lender had released some new products and so we now had a third option.
And it is this point that we cannot stress enough in that as a whole of market broker we scan the whole market to find the best lending options for our customers. But as the market for bad credit mortgages changes daily, it really pays dividends to persevere and get the latest mortgage products available at the time.
This new application went in and the underwriter had a few requests, most of which we already had the answers to in preparation.
The outcome after 2-3 weeks (which included the valuation) was that we were able to secure a Mortgage.
The good news is that it turned out to be cheaper than the secured loan route and only marginally more expensive than the first application. It also included free legal work and a free valuation, which came in quite handy as the customers did not really have the money available to spending on valuations etc.
The rate was on the high side (~4.2%), but all things considered – an active DMP and a business needing financial assistance, the rate was actually not bad.
We had to work hard for this one, with 3 applications to get it through, but the important thing was neither us nor the customer gave up and eventually we got there with it.
This was quite possibly the hardest application we have worked on for some time and it took a lot of work to get this through and with everything going on in the background, there was also a lot of pressure on us succeeding.
Summary
We do not always get it right first time and we will never have a 100% success rate as there are circumstances beyond our control and lenders can and do change their products.
The issues we had to overcome on this application individually could be done easily enough, but combined they made it a very complicated application and one we really did struggle with.
I think this also emphasises why it is important for Mortgage Brokers to keep on top of the market they are working in as had we not specialised in bad credit lending, we may have missed the new products being launched by the lender.
Had we not been able to get this through, the alternative would have been to sell the family home in order to clear the debts which the applicant did not want to do. Added to that, the costs of doing so would have been more than the cost of the mortgage during the 5 year deal we went for, for example legal fees in addition to stamp duty and further legal fees on the new purchase. So whilst this is expensive in the short term, in the long run it should be cheaper. Once the 5 years are up, we can look to get the customer with a normal lender as there will hopefully be a few years good accounts and the adverse credit issues may have dropped off the credit report by then or at least not far from dropping off.
If you are struggling, get in touch. As this case sums up perfectly, what happens in the bad credit mortgage market changes on a daily basis so whilst some doors may have closed yesterday, others may open from other bad credit lenders, so perseverance in researching the credit market really pays off.
We will always give a realistic assessment of your chances upfront, our fees are only chargeable if we get you a Mortgage (at a rate you confirm is acceptable from the outset) – we believe that you should only be paying us if we get you your mortgage, not for speculative applications.
We cannot promise to get your case through but we can promise to keep trying for as long as we think we can place it. This application is a great example of one or 2 lenders saying no, does not mean it cannot be placed elsewhere.
