My daughter was the victim of domestic violence some years ago. Her former partner received a suspended sentence in 2010 after threatening to kill her.
Before she escaped the relationship, he forced her to sign an application form for a £31,000 loan. All the money was used to pay his debts; she did not see a penny of it. When she left him, she stopped making repayments on his behalf.
My daughter is now engaged to an excellent man and they want to buy a home together. But her application for a mortgage, though initially approved, was rejected because of the unpaid debt on her records. Can you help?
JILL REPLIES Question of Money usually deals with three or four letters a week, but this one is so important that I have decided to focus on a single issue today.
One in five people in the UK have experienced financial abuse in an intimate relationship, according to research for the charity Refuge and the Co-operative bank. For women, financial abuse rarely happens in isolation — 86% of victims also endure other forms of abuse.
Your daughter Mary [not her real name] suffered in silence. “It went on for several years and I used to dread the weekends, when I couldn’t go to work,” she told me. It was only when a colleague expressed concern one Monday morning, because she looked so tense and pale, that she broke down and the story came out.
She never went home again. Her employer encouraged Mary — an eloquent, middle-class, professional woman whom you would never suspect of being a victim — to go to the police.
Because her former partner left threatening messages on her phone, he was convicted of harassment, given a suspended sentence, ordered to complete a domestic violence course and served with a restraining order.
But in 2007, three years before her escape, Mary had been coerced into making a joint application for a £31,000 loan from Paragon.
Mary was the main earner and had to agree to sign the loan as her partner could not afford the payments by himself. The loan was secured as a second charge on their home, which they jointly owned. This meant that, if they failed to keep up with payments, the home could be repossessed. She also paid the mortgage on her own and made regular monthly payments to her partner to pay off his debts.
Mary rang Paragon twice to discuss the details of the loan application. “When Paragon explained that we’d be repossessed if we failed to pay off the loan, I started crying. On both occasions my partner was in the room, listening to what I was saying. I was incredibly scared that he would hurt me if I didn’t go through with it.”
After leaving her partner, she stopped paying for the mortgage and the loan. The mortgage lender repossessed her home and, possibly because of the history of domestic abuse, it did not put adverse marks on her credit record. The sale of the property may also have covered the entire outstanding mortgage. But Paragon’s loan remained unpaid.
A year after Mary left, Paragon declared the loan to be in default and told the credit reference agencies. This had little impact on Mary — until last May, when she and her new partner decided to buy a home. Their mortgage application was rejected; when Mary checked her credit record, she discovered the default was blighting her chances.
Default marks stay on credit records for six years. As the mark was applied to Mary’s record in February 2011, it was removed last month. Lenders can no longer see that she defaulted on a loan and she can now apply for a mortgage.
But Paragon could still pursue her for the money and apply for a county court judgment (CCJ) if she refused or was unable to pay. The judgment would appear on her credit record, making it almost impossible for her to borrow.
Unsecured debts become “statute barred”, or unenforceable, six years after the date on which the debtor last acknowledged their existence or made a payment. Lenders cannot take legal action to recover these loans — and the debt has to be written off. If the debtor admits that they owe the money in writing, or makes a payment, before the debt becomes statute barred, the clock is reset and they will have to wait another six years.
However, Mary’s debt was secured. Jonathan Chesterman of the debt counselling charity StepChange said: “While the interest incurred on a secured loan can become statute barred after six years, the capital part of the loan lasts for 12 years.”
The 12-year period may have started afresh for Mary after she wrote to Paragon last year, meaning her £31,000 debt would not become statute barred until 2028.
The rules are slightly different in Scotland, where unsecured debt can be statute barred after five years, but the period for debt secured on property is 20 years.
Talk to creditors
If the creditor does not make contact, or there are only a couple of months to go before the debt becomes statute barred, there may be a temptation to ignore the debt and wait until then. But this can be a risky strategy; if the creditor has been trying to get in touch, without success, it may decide to apply for a CCJ (known as a decree in Scotland) instead. If this happens before the six or 12 years are up, the debt will not become statute barred.
When Mary explained the background to her loan application, Paragon suspended the account and asked for more details, including the crime number for her case. After reviewing the evidence, Paragon decided to remove her name from the outstanding debt. Her former partner remains liable for it.
Paragon said: “Cases of this type are rare but if customers find themselves in a similar position to Mary, we would advise them to come forward at the earliest opportunity. The information we need to conduct this type of investigation will differ according to the particular case — but would, for example, include crime reference numbers. Once we receive this information, we then take steps to verify it, such as contacting the police. Our priority will always be to investigate in a sensitive way to limit any further distress to our customers.”
Mending the damage
Mary could have asked the credit reference agencies to put a “notice of correction” on her record, explaining the background to the default on the Paragon loan. Lisa Hardstaff at the Equifax reference agency said: “This is a 200-word statement explaining the circumstances that might have caused this problem to any lender accessing the report.”
Equifax takes the information in a notice of correction at face value, she added. “The text will be assessed to ensure that it is not defamatory, but otherwise we do not require any further proof or evidence to support the claims made in the text. This is the same for all the credit reference agencies. The agencies, therefore, do not generally allow other individuals or companies to be named in the text.”
Even though the default no longer appears on Mary’s credit record, her former partner does — through the address where they lived together. This worried Mary, in case his credit record were to impair, by association, her ability to borrow.
Equifax said a link through a previous address was unlikely to have any impact on an individual’s credit score — provided there were no longer any joint financial agreements.
But in these exceptional circumstances, and because the address is more than six years out of date, Mary can ask for a “notice of disassociation”. This will ensure any connection with her former partner is removed from her credit report.
Hardstaff said: “A financial association will only be removed from an individual’s credit report when requested. It will not be removed automatically when an old credit agreement of more than six years comes off the record. So it is worth taking this additional step.”
Equifax encourages those whose credit records are impaired as a result of domestic violence to contact the credit reference agencies for information on how they can provide support.
For more details about credit reference agencies and notices of correction, visit ico.org.uk/ for-the-public/credit.
Getting a mortgage
Now the default has dropped off, Mary has a strong credit score and should have no difficulty obtaining a mortgage with a mainstream lender. However, some lenders specialise in “adverse credit” loans and mortgages for people with tarnished credit records. Such mortgages carry higher rates of interest.
David Hollingworth at the broker London & Country said: “Ideally the prospective borrower will have got back on track and will have either paid off, or be in the process of paying off, the outstanding debt. The older the default, the more likely the lender is to offer a mortgage.”
Hollingworth added that while people may be able to borrow with a default or even a CCJ on their credit record, the interest rates will rise according to the severity of any issue. Those who have an individual voluntary arrangement — a form of payment plan agreed with creditors — or who have been made bankrupt will find that the vast majority of lenders are not prepared to offer a mortgage at all.
‘Don’t be a victim twice’
Domestic violence is all about exerting control — and power over access to money is one of the easiest ways to dominate. Sandra Horley, chief executive of Refuge, said: “An abusive man will try to control the purse-strings, just as he tries to control every area of his partner’s life. By preventing his partner from working or pushing her into debt, he renders her dependent on him and increases her isolation. Not only does that idea reinforce his control over her, it often prevents her from leaving.
“Even women from comfortable backgrounds can be trapped in the same way. It is a myth to assume that such women have their own resources or easy access to joint funds. Many women who live with abusive men have to ask their partners every time they want to make a purchase — often having to submit minute details so that a decision can be made about whether or not they are allowed to have a new coat or a pair of shoes.”
The financial problems resulting from abusive relationships can take a long time to resolve. Mary left her partner seven years ago — and is only now able to borrow again.
But she urges women not to despair: “Don’t give up and be a victim twice — there’s always light at the end of the tunnel.”
If you believe you are being abused, read Refuge’s guide My Money, My Life (refuge.org.uk). To get help, call the 24-hour National Domestic Violence Helpline, run by Refuge and Women’s Aid, on 0808 2000 247 or the Men’s Advice Line on 0808 801 0327.