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Today’s holiday short comes from Paul, who asks: I was wondering before I do get my hopes up for a future in property. I am basically a lender's worst nightmare - A bottom feeder when it comes to borrowing. A very low credit score, thanks to a few hiccups in life, as we all have now and again. I'm also currently a self-employed (but contracted) freelancer (again, banks hate that). Has anyone here managed to get things going from literally a bottom level start? Is it do-able?
Want to hear how to go about things when the computer says no? Today should help!
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Transcription of the show
Hello, and welcome to another episode of The Property Voice podcast. My name is Richard Brown and as always, it’s a pleasure to have you join me on the show again today.
Today’s holiday short comes from Paul, who asks: Has anyone here managed to get things going from literally a bottom level start? Is it do-able? He uses the line: I am basically a lender's worst nightmare - A bottom feeder when it comes to borrowing.
Want to hear how to go about things when the computer says no? Today should help!
Let’s hear Paul’s story and see how I responded to the topic of finding your property financing with a low credit rating now then…
Property Chatter
This comes from Paul…
To my main point, and questions - I was wondering before I do get my hopes up for a future in property. I am basically a lender's worst nightmare - A bottom feeder when it comes to borrowing. A very low credit score, thanks to a few hiccups in life, as we all have now and again. I'm also currently a self-employed (but contracted) freelancer (again, banks hate that). It's great when you have an accountant that manages to squeeze your books to your advantage, but the flip side of that is lenders think you're on the bread line.
In my favour though I'm currently trying various things to re-build my credit: cards, phone, etc. No Bankruptcies or CCJs and everything paid on time, plus I have about 85k equity in my house that I'm looking to unlock (once I have the bottle!) to invest to get things going. At this early stage and referencing the Rob's advice so far a flip may be a good place to start and build up from there.
Has anyone here managed to get things going from literally a bottom level start? Is it do-able? I know with hard work anything is possible and I'm under no illusions that it will be easy. Blimey, it was tough enough back in the early 00s getting a mortgage and that was when the banks were throwing money at people! Perhaps a better plan would be to set up a LTD company instead and start from there? Any advice would be welcomed, and I'm looking forward to learning more, and hopefully earning more by getting things going.
All the best and thanks in advance!
Paul
Richard’s Response
Hi Paul
The 'bottom-feeder'; surely you are being humorous or at least self-effacing...but if not DO NOT PANIC!
First, to clarify, I am not a mortgage broker, so all I can share with you is some hints and tips based on general experience, some personal through a career in financial services, property investing and in the past, some financial challenges too, along with from other people I work with or alongside.
So, one of the first steps is to understand your current position, which it sounds like you are doing. Get hold of your credit reports, from each of the main credit reference agencies, of which there at least 3 (Experian, Equifax & Call Credit plus a free one called Noddle). Make sure you do apply for each of them as some record different things from different institutions; you are entitled to get a 'statutory copy' for £2 the last time I checked (I have a subscription now). Also, search for and apply for your National Hunter profile (c£10 from memory), which most people have never heard of them and so is the lending market's biggest secret, more on this from an old blog post here: https://www.thepropertyvoice.net/the-secret-credit-reference-agency-big-brother-is-watching-you/
Next is to repair or correct any mistakes or errors that exist. For example, I had a false address connection that I needed to remove from my report, which could have potentially and wrongly linked me to some dodgy drug dealer or something! If you have any outstanding defaults or judgments, then make a plan to clear them. If you did have any and they have now been cleared (or will do) then get a 'satisfaction certificate' and make sure it is correctly recorded against your credit report too. If you have large debts, an IVA or that sort of thing, then the 'snowball method' can help to sort them out. This is where you throw extra money at one debt in particular, usually the one with the highest interest rate, the largest monthly repayment, or even that you can pay-off the quickest. With a little effort, you will be able to take a bite out of this and then move on to the next one, which creates the snowball effect, accelerating as you go.
You make a good point about some so-called credit repair tactics, such as having smaller credit / payments that will help you to show a better payment record and money management skill. Also, keep in mind, that bad credit has a 6-year shelf-life (10 years for bankruptcy), so it should fall off your report after this time PROVIDED the account has been settled or brought back up to date first. Time is a great healer with credit histories, so if you struggled back in the early noughties, perhaps things look better today...
If once you have started all this and you feel as though things are stabilising, start to have some savings, no matter how small as lenders also like to see some savings discipline too, but debt pay-down is the main priority I accept. Avoid using all your credit limits and where possible keep their unsecured debt balances to 50% or less of the available credit limit. A useful technique here sounds counter-intuitive and also requires great self-control, so tread carefully! But, if say you have credit cards with balances of £6k and a total limit of say £8k, clearly this suggest that you are using 75% of your available credit limit. However, if you get another credit card with a balance of say £4k and DO NOT USE IT (or switch some of the existing balances across before cutting the card up!), then you will be using 50% of your available limit with the same debt, which improves your credit score usually.
So far, we are only talking about credit repair and consolidation. But if you speak to a decent mortgage broker, especially after you have got this far and everything is more under control, they should be able to tell you if you qualify for lending with certain lenders. Just like in love, there is 'usually somebody for everybody' out there Some lenders specialise in 'adverse credit' or 'sub-prime' lending and believe it or not, some short-term lenders do not take up a credit reference either! I am not saying you will get the best rates, but you still get lending is all.
Then, there are some alternatives to mainstream High-Street Bank lending too...options, instalment contracts, non-status lending / bridging, developer & vendor finance, JVs, private lenders and so on are all out there if you look deeply enough. In fact, check out series 3 of The Property Voice Podcast for all you can eat financing options from here onward: https://www.thepropertyvoice.net/property-financing-introduction-s3e01/
In summary then...understand and control your credit position, understand what lending options exist based on your credit rating and also explore alternatives to the obvious and mainstream. Finally, please note: I am not providing any financial advice here, just in case that was not clear. So, do not get another 6 credit cards and take out a pay day loan from a loan shark to go and buy a property, as it probably won't end too well!
Hope that helps!
Best
Richard
So, that’s my next holiday short…another one is coming up next week.
As a reminder, the show notes can be found over at www.thepropertyvoice.net. Or, if you want to talk about anything from today’s show, or just talk property investing more generally, email me at podcast@thepropertyvoice.net, I would be happy to hear from you!
Once again, all I want to say is thank you very much for listening once again this week and until next time on The Property Voice Podcast…it’s ciao-ciao.