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    • Blimsters
    • By Blimsters 10th Oct 17, 6:34 PM
    • 7Posts
    • 0Thanks
    Blimsters
    About to start saving for a deposit, should I pay off debt or save more?
    • #1
    • 10th Oct 17, 6:34 PM
    About to start saving for a deposit, should I pay off debt or save more? 10th Oct 17 at 6:34 PM
    Hi there

    I currently don't have any savings, but I'm about to start saving for a mortgage deposit. I'd like to be able to buy a house as soon as possible, but I do obviously appreciate that saving will take some time. Something I'm unsure about at the minute, is whether I'm better off focusing on paying off credit card debts first (details below), or should I just put all of my disposable income into saving for the deposit? I don't know which will have a more positive effect on the rate I'm likely to get. I had initially assumed that I'd be better off with little/no debt, but my credit score is actually quite good (935/999) according to experian, so I'm not sure if the debt would have a negative effect on the rate I was offered or not.

    Some details...

    Gross income: ~£51,000
    Net monthly income: ~£2500
    Total outgoings: ~£1100
    Current credit card balances: ~£4800 (of £11,400 available credit)

    I'm pretty good at keeping the cards on 0% rates, so my monthly commitment is only about £100. I also will have paid off a car loan in about 12 months' time, and will have a car valued at around £7-8k which I plan to sell to supplement the deposit. The way I see it I could do the following over the next 12 months:

    Scenario A
    Pay off £4800 credit card debt
    Help to buy ISA £1200 + 11 x £200 = £3400
    Car sale = £5000 (conservatively, factoring in buying a downgraded model)
    Total saved = £8400]
    Debt free

    Scenario B
    Pay credit card minimum £1200
    Help to buy ISA £1200 + 11 x £200 = £3400
    Car sale = £5000 (conservatively, factoring in buying a downgraded model)
    Total saved = £11,000
    Still have £3600 credit card debt

    Basically, which scenario will get me the better rate? I realise that, based on my disposable income, I could in theory do a combination of the two, and obviously the more I save the better it would be, but to simplify things for the purposes of discussion I'll just stay within the bounds of these two examples.

    Thank you in advance for any advice.
Page 1
    • zx81
    • By zx81 10th Oct 17, 7:58 PM
    • 13,618 Posts
    • 14,073 Thanks
    zx81
    • #2
    • 10th Oct 17, 7:58 PM
    • #2
    • 10th Oct 17, 7:58 PM
    It's more about affordability. Try one or more of the affordability checkers on lenders' site to see the impact of the debt.

    Much will also depend on your credit history. Your CRA score doesn't count for anything when borrowing money. Or anything else, for that matter.
    • YHM
    • By YHM 10th Oct 17, 8:52 PM
    • 84 Posts
    • 25 Thanks
    YHM
    • #3
    • 10th Oct 17, 8:52 PM
    • #3
    • 10th Oct 17, 8:52 PM
    I would personally angle towards scenario B. The more savings you have, the bigger the deposit, the better the interest rate. You will also need to account for purchase costs (SDLT, legals, broker fees etc), so the better position you are in with your savings pot, the better.

    Lenders will generally account for 3% of a CC balance within affordability, which based on £3600, which is only £108 against a good net salary. That net looks low as well for a 51k salary. Would expect closer to 3k net. Guessing you have a Student Loan?
    I am a Mortgage Broker.

    You should note that this site doesn't check my status as a Mortgage Broker, 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
    • enthusiasticsaver
    • By enthusiasticsaver 10th Oct 17, 10:03 PM
    • 4,406 Posts
    • 8,164 Thanks
    enthusiasticsaver
    • #4
    • 10th Oct 17, 10:03 PM
    • #4
    • 10th Oct 17, 10:03 PM
    Credit scores are meaningless when it comes to mortgage applications. Affordability is more important so my inclination would be to pay as much of the debt off as possible before application. You may well be asked what you are doing with the £1400 disposable income you have each month as you do not have any savings.
    Countdown to early retirement on 21.12.17 3 months to go.
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