Wealth Check: 'I don't know where I'll stand with lenders'

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The Independent Online

Not only has Anthony built up £8,800 worth of debts - comprising £7,000 of student loans, £1,000 of council tax and an £800 bank overdraft - but in each case he is being chased by late-payment departments.

Anthony recently got in touch with his local council to sort out payments of his overdue tax, but he has not been in contact with either the Student Loans Company (SLC) or the Bank of Scotland for two years.

Another problem may be that he has not been registered on the electoral roll for the past two years, which, he has heard, could have a negative impact on a mortgage application.

Anthony would also like to start saving for the future, with a pension plan, but he just can't seem to find the cash. Anthony's current earnings after tax are about £1,200. He thinks that his living expenses, including bills, food and entertainment, come to about £600 a month.

We asked three independent financial advisers for their help: Ashley Clark of NeedAnAdviser.com, Colin Jackson of Baronworth Investment Services Ltd and Nick Gardner of Chase De Vere Mortgage Management.

STATUS

Jackson says that, while some lenders are prepared to accept proof of residency (two items will be needed), others use credit scoring when considering mortgage applications. If Anthony is not registered on the electoral roll this will negatively affect his score. It is in his interest to register as soon as possible.

DEBT

Getting his name on the electoral roll, would put Anthony "back on the radar" of credit and collection agencies, says Clark. Anthony has more than likely slipped through the net, preventing the SLC from automatically deducting loan repayments from his wages. Getting on top of the debt is Anthony's first challenge, adds Clark. The fact he has had no contact with these lenders does not mean the debts have disappeared - or stopped accruing interest.

In addition, warns Jackson, when Anthony applies for a mortgage he will have to disclose his debts - which, in any case, will show up on credit searches - and explain to lenders why he has defaulted on repayments. Jackson says that Anthony must start paying off his debts now so he can establish at least a year's track record of more responsible financial behaviour.

SAVINGS

After basic living costs, Anthony has about £600 a month left over. Clark recommends that he has four "very lean" spending months and tries to completely clear his overdraft and council tax debt.

Clark acknowledges that many people have difficulty managing their money, but suggests organisation is the best remedy. He wants Anthony to operate using three bank accounts, one each for bills, savings and "lifestyle". For the bills facility, Clark suggests a Premier Direct Current Account with Alliance & Leicester, which pays interest on credit balances of 5 per cent a year provided that £500 a month is paid in. Anthony's wages would go into this account and all bills would be paid out of it. He would then have standing orders set up to the other accounts.

For the savings facility, Clark recommends a mini-cash individual savings account from First Direct. This is a tax-free account paying 5 per cent a year and Anthony should be able to spare £150 a month. For socialising, shopping and other lifestyle spending, Clark recommends Abbey's E-Saver account, paying, 4.54 per cent a year. The standing order to this account should be £350.

MORTGAGE

If he could build up a sizeable deposit - say 30 per cent of the purchase price - lenders would look on him far more favourably despite his poor credit record, says Gardner. Clark adds that Anthony might consider a "sub-prime" loan, which would normally be administered by the specialist lending arms of a well-known company. But this can be expensive.

PENSION

Jackson says that, while Anthony is right to want to save for the future, he has other, more pressing financial priorities for now.

Case notes

Anthony Cole, 27, lorry driver, Edinburgh

Personal: Anthony has driven lorries for a Scottish-based parcel delivery service for the past four-and-a-half years.

Income: £1,541 a month (£1,202 after national insurance and tax deductions).

Monthly outgoings: About £590 a month on general living expenses.

Debt: £7,000 in student loans; £1,000 in council tax arrears; £800 Bank of Scotland overdraft. In each case, Anthony is being chased by late-payment departments. He is in contact with the local authority over his council tax debt but has not contacted the other organisations for about two years.

Savings: None

Pension: None

Property: Anthony is living in rented accommodation but would like to buy his own property.

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