Getting a mortgage after a Protected Trust Deed is possible. It may not occur immediately, but it certainly is possible.
However, it will not be possible to obtain a re-mortgage on a home that is still in the Trust Deed, without the Trustee’s permission, until they have discharged their interest. A Trustee’s interest in a property can continue even after the debtor is discharged.
Protected Trust Deed and Fresh Starts
Many consumers leave Protected Trust Deeds and go on to become home owners or re-mortgage their existing homes. This makes sense, as one of the purposes of a Protected Trust Deed is to address problem debts and to allow consumers a fresh start.
Once someone’s leaves a Protected Trust Deed, however, their credit rating can still be affected, even if their ability to afford any mortgage repayments will have improved with their discharge.
However, in deciding whether to give someone a mortgage or whether to re-mortgage an existing borrower, a lender will consider a number of factors, meaning although someone may be able to get a mortgage after leaving a Protected Trust Deed, it may not occur immediately.
Credit Scores and History
When someone is applying for a mortgage, one of the factors a lender takes into consideration is the potential borrower’s credit score and history. This means obtaining a copy of the prospective borrower’s credit report from one of the three main credit reference agencies (see here for more information on credit reference agencies).
These reports contain information about a consumer, including personal information and information about their borrowing history, including any arrears or defaults they have had and whether they have previously been in a Protected Trust Deed. It will also contain information about existing borrowing and their recent payment history.
Information about Protected Trust Deeds and defaults should remain on someone’s credit reports for up to six years after they occur, so they are likely to remain on someone’s credit history even after they have been discharged from their Protected Trust Deed, which normally lasts for 4-5 years.
Another factor lenders will also consider is whether a prospective borrower will be able to afford the mortgage if it is granted and whether it will remain affordable should their circumstances deteriorate. This is known as stress testing the borrower’s affordability.
A consumer who has left a Protected Trust Deed should be helped by the fact the Protected Trust Deed will have dealt with their historic debt problems.
Loan to Value
Another factor lenders will consider before deciding to lend someone money is the loan to value ratio of the mortgage they want to take out. This means, as a percentage, what percentage of the house value do they want to borrow? So, where the home is worth £100,000 and someone wants to borrow £75,000, the loan to value ratio of the borrowing will be 75%.
This means when someone is buying a home, can the borrower can put down a deposit towards the purchase of the house? Or where the home is being re-mortgaged, what is the loan to value ratio of any existing borrowing.
This may mean the lender may only be prepared to lend a percentage of the value of the home, such as 65% or 75%, and will either expect the borrower to be able to put down a deposit or for there to be existing equity in the home, where it is a re-mortgage.
It is likely, however, even where a borrower, who was previously in a Protected Trust Deed can get a mortgage or re-mortgage, the terms of the loan will not be on the most competitive terms available reflecting their impaired credit history.
However, over time and as they demonstrate they can maintain regular payments to their existing mortgage, where they have one, or to their utility bills or other borrowings, this should improve.