Twitter @AshleyFulwood ashley@ocduk.org

Adulting…. Mortgage saving when in debt

So in the last 18 months, I have started ‘adulting’…. and saving for my first mortgage… this is my honest saving story of someone aged *cough* 47 without savings, already in significant debt.

I will reflect honestly about the level of my debt and mistakes I have made. It’s grim reading for me, but by writing it down I hope it helps give others ideas for changing the direction they might be heading and also to offer some hope for anybody else about to start saving whilst in debt, because it can seem impossible, it’s not, you just have to get smarter and make some sacrifices… in my case no new bike until I have my own house to put it in!

Disclaimer: I have offered a couple of tips.  It is merely advice based off my own mistakes and from what I have subsequently read and learned… as you will read, I am not an expert!  So please check with your own financial expert before following my tips.

But first the back story…

Where I lived in Sussex between 2010 and 2017

So I was renting a lovely little cottage in Sussex, the old gatehouse on a small country estate and I was there for 7 years, actually the longest I had ever lived anywhere, OCD usually forced me to move one way or another.  But, after 7 lovely years the owners asked me to leave so they could, understandably allow their young adult daughter in there.

I moved to Belper and again, renting a lovely little place with lovely views and I had started to settle here in Belper after the shock of moving from my happy place in Sussex. But after a couple of years the owner decided to sell up to a property development company and left me with more uncertainty. As it happens, I am still here 2 years later, but that second shock of not knowing where I would live within 2 years was enough to encourage me to start adulting and saving money to buy my own place, so I am not longer at the whim of landlords and saving is not something I have ever, ever done in my life!

But slight problem, how do you save money when you are thousands of pounds in debt?

The back, back story.

Growing up through my formative adult years with OCD, I never worried about saving, I rented, I would throw things away that were ‘contaminated’ and buy again (on credit card).  I would move rentals often, 6 months usually, that would cost more money.  I grew up in an era where put things on credit, pay later and that’s how I lived from when I was 18, well until I started saving last year!

I lived the rubbish existence of work > OCD > work > OCD and as my work in the city of London meant my wage increased I would get more and more credit so I never worried.  In later years I was able to get smarter and simply put my credit cards on 0% deals until that expired and get another and another and another. I had several cards with lots of credit debt but I wasn’t paying interest.  I also had a loan to buy a car, then I would top that up when nearly paid off and just kept doing that.

I don’t know if this was because of OCD, but because my life never panned out, I never thought of tomorrow, only today I would worry about saving and buying when I settled down with someone….. but that never happened and life being what it was for me, I focused on developing the charity, but not myself…. perhaps it was easier to do that in my head.

I lived my life one day at a time because of OCD, with no thought of the future for too long, far too long.

So fast forward to 2019

I started to look at buying a house and how much I will need to save…. Geez, that was a shock. Do you know how much houses cost to buy these days?!   I didn’t!  Seeing the type of place I grew up in (fully detached house with front/back garden and a garage) now costs £200,000, some nearly a quarter of a million pounds, and that was quite a shock.

But I took stock and made some tough decisions…. time to start saving I told myself, paying off debt and spending more wisely and… stop buying new expensive bikes every 2/3 years!

I realised two things. I need to get my mortgage before I hit 50 and get it paid off by retirement age and that I need a 95% mortgage most likely.   But also, if getting my mortgage by age 50 is the target, I actually don’t have long to save!

Then came the realisation I am, paying loads of credit card/loan debt, so how do I also save for a mortgage?  Shit?!

I am targeting a 95% mortgage and I was very lucky, I managed to just get my Help to Buy ISA account opened early November 2019 just before they closed it to new applications in late November 2019. The Help to Buy ISA means anything I save for my first house, the government will add an extra 25% (if I claim before Nov 2030).

My age does count against me, so when I get the mortgage I don’t have long to repay it back before I reach retirement age, and that means larger repayments than I pay now for rent, but the more debt I pay off now, the easier that becomes once I have my house.

All of this sounded daunting and impossible, but by having honest assessments like this, I could take stock and start to create a plan. At first it was just to start putting a little into the ISA each month and go from there. I had bit of a stop/start with saving, but eventually I got my head down and focussed.

I created a plan for how much I can afford to save for my mortgage and how much to pay off existing debt. The most you can pay into a Help to Buy ISA is £200 PCM, and whilst that was a struggle some months I can afford that, just. Some months I will have spare cash to pay towards credit cards.  I would go through all the rubbish in my spare room and get it on eBay and 50% to pay off credit cards, 50% towards extra mortgage savings.

I mapped out that based off that £200pcm maximum ISA saving, how much I will have at the end of each year, with the 25% bonus. If I can keep the monthly payments up, it soon adds up…. even with the 2.69% annual interest when I opened the ISA now only 1%.

Total Saved with 25% ISA
End of 2020 Projection £2,639
End of 2021 Projection £5,077 £6,346.25
                                        Mid 2022 Projection £6,339 £7,923.75
End of 2022 Projection £7,539 £9,423.75
End of 2023 Projection £10,026 £12,532.50
End of 2024 Projection £12,538 £15,672.50
End of 2025 Projection £15,075 £18,843.75

The credit card debt was a concern, but the first thing I decided was because age is against me, I need to prioritise paying into my ISA.  Tip: For anybody reading this who is much younger, my advice would be to pay your credit cards first. Perhaps setup a standing order for £50 in a high interest savings account for your mortgage and everything else you can afford each month towards paying off existing credit card debt, that in time will give you so much more capacity to save quickly for your mortgage.

But because age is against me I am putting £200 a month into my ISA and everything else into paying off the 8 credit cards. I also planned to keep getting 0% interest card deals so I was actually chipping away at the debt without interest charges taking the repayment money.

Well that was the plan…

The plan unravelled….

Firstly I managed to get another 0% credit card deal so I moved the bulk of my largest card to that and paid off the remaining 35% of it. I had a huge £12k limit on the card which I had for 20+ years, and I did what I thought was the best thing I could, I closed the account.  I thought that would help my credit score and was the sensible thing to do was to get rid of £12k worth of potential debt.

Oops, I was wrong there.

My credit score with Experian went from Excellent to bordering on Fair/Poor.  From what I subsequently understand was that closing the Barclaycard really hurt me for two reasons.

 

  • 20+ years of credit card history lost. My next oldest credit card was only a few short years old.
  • £12,000 of available credit lost, which meant my credit score now showed I was using over 95% of credit utilisation.

Secondly, the other factor that impacted on my plan….  COVID!

With the arrival of COVID, 95% mortgages were gone (although at time of writing, some are now back).

The other problem was that a combination of COVID and my credit score now being reduced meant I could not get any more 0% credit card deals and as my existing 0% deals ended, one-by-one I am suddenly paying lots of interest of each month, so only a small amount is being repaid against each card.

Lost hope

I won’t lie, midway through last year getting a mortgage felt like a forlorn hope and I nearly jacked in saving and putting all my money into paying off credit cards. As mentioned before, if age was on my side, that would be the right thing to do. But with the advice of my house owning colleague who has been so encouraging and helpful, she told me to keep going, keep saving and because I cant afford to buy for 18-24 months anyway, mortgage deals will be back by then… she was right.

So, Plan B

Keep saving, stick to my chart above for saving projections and let the mortgage market take care of itself for now and review again this time next year. As it stands, I might have enough for my deposit by this time or towards the end of next year….  Not too long at all!

As for the credit cards, create a plan and stick to it.  The plan I have created is, create a list of the cards with the lowest amount owing and chip away at them one-by-one. What this will do is mean I will see cards being paid off and from a morale boosting point of view that will really help.  And each time one is paid off, I have more available money to pay the next one off.  (Tip: For others, you may be better paying off the card with the highest interest rate first).

I still have my loan, that was due to be paid off next year, but I was offered a three month loan holiday which I accepted (I pay tad more interest, but I am paying more credit card interest). I made use of that money to pay off a huge chunk against one of the credit cards.

As it stands, two cards have been paid off now, and another as a balance of just £19 left on it which will be paid off next month.

Plan B then become problematic…

The bank accidently forgot to mark my loan repayment holiday as a holiday and it was reported to the credit agencies as the missed payments. My credit score that had risen to almost Good dropped to Poor, bordering on Very Poor.

Then yesterday I had a text to say I was over 90% of my credit limit on one of the credit cards. When I checked today I realised that MBNA had automatically lowered my credit limit… that in itself is fine as I don’t need credit, but what it does mean instead of that card utilisation being around 50% it means I am 95% at my limit. I called them today and they told me because my credit report changed (because of the bank’s mistake) they automatically lowered my credit limit and did so immediately without warning and can’t raise it again for 3 months.

This is important because Experian seem to mark down if you go over 80% of your available credit.  79% seems fine and marked in green, over 80% seems to go red and lowers your credit score as you can see in the image.

My bank have raised a complaint on my behalf automatically and will report to Experian correctly that I had not missed payments. But that doesn’t help me as I now have to find £500 to get my MBNA credit card back to below 80% of the new limit.

Another credit score issue happened last month. Because my previous energy supplier, Bulb, had increased their costs for the second time in a year I switched to OVO energy in April to try and save money. What I didn’t realise that opening this account is classed as credit and as also meant my credit score dipped about 14 points for opening a new account.

 

Problems, but keep going…
If OCD as taught me one thing, problems and setbacks are simply challenges waiting to be faced again, that I should not give up and I need to keep fighting, keep moving forward, even if it the pace is slow. Slow steps that are moving forward still lead to long journeys.  I have done that for 25 years now, I know how to face setbacks and fight back, I can do this,  I have this!  I have my house buying target in sight, and that is potentially only a year away. So I will keep going, no matter what new problem crops up.

Credit Score importance
The reason I keep referring to the credit score is that it plays a part when it comes to getting a mortgage. From what I have read and understand, whilst a bad credit score won’t stop me getting a mortgage, it may stop me getting the best deals.

That’s why I am paying £14.99 a month for Experian to keep a close eye on what is bringing my score down and trying to do what I can to boost it (like reporting my rent).  Just seems ironic we have to pay £179.88 a year to see what is being reported about my own financial situation… a £179.88 that could be used to improve my financial situation!  To be fair you can get a free monthly score, but without the premium subscription I would not have known the banks error had caused a big impact on my credit score.

When I do have enough for my mortgage next year, I will review my credit score and I may still wait 6-12 more months to keep paying my credit cards off to boost my credit score before I apply for a mortgage. I will take advice at that stage if there is benefit in me waiting a tad longer, plus if I can somehow save enough that I only need a 90% mortgage instead of 95% might help get a better mortgage deal too.

I did read a great article on the Money Saving Expert website and a couple of others that makes the following recommendations:

  1. Check all credit scores with three main providers and check the report carefully to fix any errors being reported. Do this 3-6 months before applying.
      • Experian
      • TransUnion – I get this score reported free through my Natwest Bank Account.
      • Equifax – You can get this free by signing up to ClearScore
  1. Don’t apply for credit for three-six months before applying for mortgage.
  2. Try to keep below 50% of available credit. I.e. you’ve a combined limit of £30,000, they’d rather you use less than £15,000 of it.
  3. Stay out of overdraft for at least three months before application.
  4. Credit agencies can take some time to reflect improved score. I found this myself, when I paid off a credit card in full, they took 3 months for that to reflect in the credit agencies reports.
  5. Cancel old unused store cards.
  6. Pay for house/car insurance up front not monthly.
  7. Check addresses on old accounts. Old credit cards or utilities if showing old address, may impact.
  8. To test a mortgage agreement in principle (AIP), offered by many lenders, is the acid test. It’s a conditional offer saying you maybe accepted.
  9. DO NOT REAPPLY IF REJECTED UNTIL REASON RESOLVED

 

I am also aware that when I do get my mortgage I then also face lots of added fees to actually buy the house.

House Buying Fees
I also need to start saving for my house buying fees, which so far will include:

    • Stamp duty – (1% on houses up to £250k. 0% for First Time Buyers.)
    • Solicitor fees
    • Removal fees
    • Survey/valuation fees
    • Search fees
    • Land registry fee

Someone who recently moved house gave me a costing on their expenses, and I think is likely to be between £1-1.5k for me, at a guess based off their fees. Hopefully I can get it much less, but at least that gives me a guide on what to budget for.  Plus my rental deposit should be returned back to me to help offset these costs.

EXPERT ADVICE WELCOMED
I am no expert in any of this, credit scores or mortgages, I am learning by reading (and with the advice of my colleague), so if you think I am doing something wrong with my plan please do let me know. I welcome anything that helps me get the keys to my new (forever) home!

Finally…

I am so proud of the fact I have actually saved so much money, for the first time in my life, proud of the fact I am sticking to the plan and creating the plan B where needed and proud of the fact I didn’t give up when things looked impossible. The image below is a snapshot of how much I have saved on my own for the first time in my life, it might not look much, but it means so much to me, it’s a start and a good start in less than two years of saving.