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How Can Your Credit History Effect Your Mortgage

Jul 15, 2008
In the past few years, a problem remortgage has become commonplace in the UK as people try to refinance their homes and better their financial situation even though they have - and sometimes because they have - a less than perfect credit history and credit score.

The terms adverse credit and bad credit are interchangeable. They both refer to someone whose credit history is not perfect. Bad credit can occur for several reasons, all of which can compel the borrower to fall into the problem remortgage category.

Adverse credit factors include a CCJ (county court judgment) against you, defaults on debts or mortgages, becoming arrears in home loan or other payments, bankruptcy, or Individual Voluntary Arrangement (IVA.)

Many people, especially in the United States, have never heard of or simply misunderstand the IVA. Unlike the UK's formal debt management program (DMP) the IVA is rather informal and as a result less conclusive way of approaching creditors about satisfactory repayment plans. While an IVA might help improve the rate on a problem remortgage it's not likely to negate its necessity.

Most IVAs are made up of one repayment each month, an agreed on amount affordable to the debtor and paid over a five year (sixty month) time period. The payment is calculated carefully based on information provided by the debtor and considers all the borrower's assets as well as liabilities, her or his income and the everyday expenses for living. The amount that will be paid to creditors is calculated based on what the debtor can afford to pay into the IVA after his or her expenses are deducted from his income. The point is not only to pay creditors but to make sure the debtor doesn't fall behind on mortgage or rent payments, car loans, utility bills, taxes and so forth.

An alternative, though less common IVA, which might improve the problem remortgage situation as well - and in fact, even more - is the lump sum IVA, also known as a full and final settlement. What this means is that the debtor and the creditors come to terms on how much the creditors will take as a settled one time payment of their bill. The debtor makes this one off payment and the matter is settled.

A proposal for an IVA is prepared by a licensed professional, called an Insolvency Practitioner, or IP for short. This person attends the meetings between debtor and creditor and drafts the IVA agreement. In fact, in individual IVAs it is often the case that the debtor is not there at all. The creditors can either accept or reject the IVA.

Once an IVA is in place, however, the fact that the debtor attempted to solve her or his credit issues with such a plan will help the cause of getting a problem remortgage. With a problem remortgage a debtor can generally get a better rate of interest than they are now paying, which can save money, improve their credit, perhaps consolidate their debts and ultimate increase their home equity.

Add to that the fact that the problem remortgage market in the UK is fiercely competitive and you have a good chance of finding a great problem remortgage deal. Rates, conditions and terms will vary considerably from one lender to another so you'll want to comparison shop and perhaps get the help of a mortgage broker or financial advisor.
About the Author
James Copper is a writer for http://www.any-loans.co.uk/remortgages.php where you can find remortgage advice
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