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    • zarf2007
    • By zarf2007 20th Apr 17, 8:54 PM
    • 542Posts
    • 598Thanks
    zarf2007
    question about mortgage and debts being settled on sale of property
    • #1
    • 20th Apr 17, 8:54 PM
    question about mortgage and debts being settled on sale of property 20th Apr 17 at 8:54 PM
    Hi,

    just want some advice to see what mortgage brokers would think of this:

    Live in London
    Joint Income: 175K
    current Propterty valued at 460K, mortgage 290K
    Now we have debt which we wish to repay upon the sale of our property, total is 50K in credit cards, + two personal loans (25K total).
    Car lease at 500 per month which we will keep.

    No Missed or late payments ever on any card/loan, credit cards are 0% and are paid minimum payment every month, as I said we will clear these on the sale of our property. Have checked all 3 credit reference agencies for both of us and all good.


    We are interested in a property in London which is 870K, so my questions are:

    1) Do lenders essentially ignore debt if it is maintained and will all be cleared upon the sale of our existing property? If not how badly does it look. I appreciate we have been slack with cards etc but as I said we would prefer to clear these in one go.

    2) is the purchase of the new property doable with our salary and equity from sale of current property? I guess with the stamp duty on the new place it would be tight...

    appreciate any advice.
    Last edited by zarf2007; 20-04-2017 at 10:12 PM.
Page 1
    • Lilla D
    • By Lilla D 20th Apr 17, 10:28 PM
    • 42 Posts
    • 18 Thanks
    Lilla D
    • #2
    • 20th Apr 17, 10:28 PM
    • #2
    • 20th Apr 17, 10:28 PM
    Hi,

    While mortgage advisors can't give advice here, I can mention a few points for you to consider and ultimately you'll have to talk to a broker to discuss the details and find the right solution

    On the face of it, what you're planning to do appears borderline do-able:
    - using an income multiplier of 4.5 (as a ballpark figure) would mean borrowing £787k
    - equity from sale is £170k minus selling costs (say, £5k for estate agent and solicitor) minus £75k debt leaves you with £90k
    - if we add the two up (£787k + £90k), then you have the purchase price without money for the stamp duty

    However, there are many details that you'll have to discuss with a broker when you want to proceed. For example:
    - details of your income
    - your ages (therefore mortgage term) and any dependants (and potential costs for them)
    - any potential savings (for example to pay the stamp duty)
    - the new property (e.g. whether it's limiting your lender choice or service charge to be taken into account as a monthly commitment)

    Finally, coming back to your first question - the level of debt does not look good, but if you commit to repaying the credit cards and the loans, then most lenders will only use the car finance as a credit commitment and not the ones you repay. If you have any savings, you may wish to consider repaying some of the debt to appear in a more favourable light, since you'll recoup the money when selling the home anyway.

    Does it help?
    I am a Mortgage Adviser
    You should note that this site doesn't check my status as a Mortgage Adviser, so you need to take my word for it. This signature is here as I follow MSE's Mortgage Adviser Code of Conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice.
    • Thrugelmir
    • By Thrugelmir 20th Apr 17, 10:54 PM
    • 52,932 Posts
    • 45,281 Thanks
    Thrugelmir
    • #3
    • 20th Apr 17, 10:54 PM
    • #3
    • 20th Apr 17, 10:54 PM
    Stamp duty is £33,500.

    Concern for any lender is that'll you'll simply rack up further debt again in the future. If you can afford to service a larger mortgage. Then why are you currently only making the minimum payments on the credit cards.
    “ “Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria. The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell.” Sir John Marks Templeton
    • getmore4less
    • By getmore4less 21st Apr 17, 5:48 AM
    • 27,974 Posts
    • 16,764 Thanks
    getmore4less
    • #4
    • 21st Apr 17, 5:48 AM
    • #4
    • 21st Apr 17, 5:48 AM
    Whats that SOA look like with only paying min payments on the CC?

    income £175k is net depending on split between £8,600 & 9,700

    Equity (£460-£290) £170k, LTV around 65% ( decent rates on that)

    Mortgage £290k say 3% 25y approx £1300, 20y £1,550, 15y £1,950k

    CC debt £50k min payments say 2% £1000
    (OK 0% but are you saving any money to cover them when the 0% runs out)

    £25 loan say over 5y @ 5% £500pm

    car £500pm

    lets say income is £9kpm out is £4kpm with 15y mortgage and debt and car.

    put another £1kpm to cover the house bills

    where is that other £4k month going if all you can afford is the min payments?

    you want to change this to

    sell up and clear the debt you have £95k left

    new place £870k LTV 95%(not so good rates) loan mortgage £826k, deposit £44k

    left is £51k to cover the costs, might just about do it with the Stamp duty at £33k and EA fees at £5k thats, £13k for the other bits and bobs solicitors, moving, essentials for the new place...


    There is £3,500 going out on debts that same money will give you

    £826k mortgage @ 3% 30y £3,500 (4% £3,900)

    That was based on a short mortgage term which you need to double also on low rates so you have too think about that, a 1% rise could take you over the edge

    I think before you worry about a lender giving you the money you look at if YOU can afford the new proposal based on your current cash flows.

    A good hard look at why you have the debt and can only manage min payments should free up cash.


    OK the above are guesses but fairly typical, also there should be other outgoings like generous pension contributions that reduce the disposable.

    When you do similar(or better a full SOA) with your real numbers, will your current debt payments cover the new proposed mortgage?

    Then what rate can you go up to before you are toast?
    • zarf2007
    • By zarf2007 21st Apr 17, 10:19 AM
    • 542 Posts
    • 598 Thanks
    zarf2007
    • #5
    • 21st Apr 17, 10:19 AM
    • #5
    • 21st Apr 17, 10:19 AM
    Hi,

    While mortgage advisors can't give advice here, I can mention a few points for you to consider and ultimately you'll have to talk to a broker to discuss the details and find the right solution

    On the face of it, what you're planning to do appears borderline do-able:
    - using an income multiplier of 4.5 (as a ballpark figure) would mean borrowing £787k
    - equity from sale is £170k minus selling costs (say, £5k for estate agent and solicitor) minus £75k debt leaves you with £90k
    - if we add the two up (£787k + £90k), then you have the purchase price without money for the stamp duty

    However, there are many details that you'll have to discuss with a broker when you want to proceed. For example:
    - details of your income
    - your ages (therefore mortgage term) and any dependants (and potential costs for them)
    - any potential savings (for example to pay the stamp duty)
    - the new property (e.g. whether it's limiting your lender choice or service charge to be taken into account as a monthly commitment)

    Finally, coming back to your first question - the level of debt does not look good, but if you commit to repaying the credit cards and the loans, then most lenders will only use the car finance as a credit commitment and not the ones you repay. If you have any savings, you may wish to consider repaying some of the debt to appear in a more favourable light, since you'll recoup the money when selling the home anyway.

    Does it help?
    Originally posted by Lilla D
    thanks, that helps a lot. Of course we will use a broker for this. we are 100% committed to showing the lender that this would all be paid on sale of our current property and can have the solicitor prove that too them if necessary.
    Last edited by zarf2007; 21-04-2017 at 10:24 AM.
    • zarf2007
    • By zarf2007 21st Apr 17, 10:22 AM
    • 542 Posts
    • 598 Thanks
    zarf2007
    • #6
    • 21st Apr 17, 10:22 AM
    • #6
    • 21st Apr 17, 10:22 AM
    Whats that SOA look like with only paying min payments on the CC?

    income £175k is net depending on split between £8,600 & 9,700

    Equity (£460-£290) £170k, LTV around 65% ( decent rates on that)

    Mortgage £290k say 3% 25y approx £1300, 20y £1,550, 15y £1,950k

    CC debt £50k min payments say 2% £1000
    (OK 0% but are you saving any money to cover them when the 0% runs out)

    £25 loan say over 5y @ 5% £500pm

    car £500pm

    lets say income is £9kpm out is £4kpm with 15y mortgage and debt and car.

    put another £1kpm to cover the house bills

    where is that other £4k month going if all you can afford is the min payments?

    you want to change this to

    sell up and clear the debt you have £95k left

    new place £870k LTV 95%(not so good rates) loan mortgage £826k, deposit £44k

    left is £51k to cover the costs, might just about do it with the Stamp duty at £33k and EA fees at £5k thats, £13k for the other bits and bobs solicitors, moving, essentials for the new place...


    There is £3,500 going out on debts that same money will give you

    £826k mortgage @ 3% 30y £3,500 (4% £3,900)

    That was based on a short mortgage term which you need to double also on low rates so you have too think about that, a 1% rise could take you over the edge

    I think before you worry about a lender giving you the money you look at if YOU can afford the new proposal based on your current cash flows.

    A good hard look at why you have the debt and can only manage min payments should free up cash.


    OK the above are guesses but fairly typical, also there should be other outgoings like generous pension contributions that reduce the disposable.

    When you do similar(or better a full SOA) with your real numbers, will your current debt payments cover the new proposed mortgage?

    Then what rate can you go up to before you are toast?
    Originally posted by getmore4less

    thanks for this, a lot to consider, tbh although we earn decent money we always live beyond our means so will need to work on that.
    • zarf2007
    • By zarf2007 21st Apr 17, 10:23 AM
    • 542 Posts
    • 598 Thanks
    zarf2007
    • #7
    • 21st Apr 17, 10:23 AM
    • #7
    • 21st Apr 17, 10:23 AM
    Stamp duty is £33,500.

    Concern for any lender is that'll you'll simply rack up further debt again in the future. If you can afford to service a larger mortgage. Then why are you currently only making the minimum payments on the credit cards.
    Originally posted by Thrugelmir
    I think with the monthly repayments on the new property there won't be room for that but I get your point.
    • getmore4less
    • By getmore4less 21st Apr 17, 10:57 AM
    • 27,974 Posts
    • 16,764 Thanks
    getmore4less
    • #8
    • 21st Apr 17, 10:57 AM
    • #8
    • 21st Apr 17, 10:57 AM
    thanks for this, a lot to consider, tbh although we earn decent money we always live beyond our means so will need to work on that.
    Originally posted by zarf2007
    it is easy to fritter away money when you have a lot coming in,

    do you have a full TV package but go out all the time?
    mobiles on contracts you don't use all the allowance.
    leave the heating on when you go on holiday


    Have a look through the debtfreewanabee board threads there are good ideas there on how to review the situation.

    http://forums.moneysavingexpert.com/forumdisplay.php?f=76

    the key is a budget that you can stick too that has a plan for every penny (in advance) and identifies your priorities.

    Why not do a retrospective budget for the financial year 2016/2017 and see if you can identify where every penny went.
    could go back to when you bought this house but 1 years is usually enough to identify the big money wasters where there is no real value.

    if you normalize on annual costs using the standard SOA it can be quite an eye opener when you find you are spending more on cups of coffee than the council tax.
    http://www.stoozing.com/calculator/soa.php
    (or use your own tool)

    Remember you have to find out where over £100k has gone in a year. and depending when the debt spree started the average over the last few years may be even higher.

    I think you will find there is £25k-£30k that on reflection could have been put to better use if you had some goals and plans in mind..

    You won't find everything but will have a good idea of the big ones, once you know where the money goes you can identify your priorities and set a new budget for this year.

    The trick is know where everything goes, so start a spending diary for 2017-18 and do a proper budget for this year thinking about where you want your £100k to go rather than just letting it drift out of sight.

    based on my previous scenario that £50k of cc debt currently on 0% and was an easy to justify spend we can easy pay that back is about to become a 30y loan and will cost in excess of £75k in total.
    Last edited by getmore4less; 21-04-2017 at 10:59 AM.
    • Thrugelmir
    • By Thrugelmir 21st Apr 17, 12:28 PM
    • 52,932 Posts
    • 45,281 Thanks
    Thrugelmir
    • #9
    • 21st Apr 17, 12:28 PM
    • #9
    • 21st Apr 17, 12:28 PM
    I think with the monthly repayments on the new property there won't be room for that but I get your point.
    Originally posted by zarf2007
    Lenders simply assess the probability as part of the decision making process. People are naturally somewhere on the scale of being optimists to pessimists. Statistics bare this out when it comes to re-offending. More so if there's an easy way out. Experience on the other hand teaches a life lesson that doesn't get forgotten.
    “ “Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria. The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell.” Sir John Marks Templeton
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