Mortgage applications and exiting debts

lalantha

Hello everyone,

This is my first post on this great informative site, so please bear with me.

I'm trying to move house and have a few questions that I've tried to answer by looking through other threads, but haven't really managed to. I would be very grateful if you could give me your views. I've tried to give as much relevant details below, but please let me know if there are others you need to know.

My current situation:

• House worth £190k
• Nationwide Mortgage = £140k (Fixed term comes to end in September)
• Salary = £53k, hoping it'll go up to £57k soon.

Other debts:

• Halifax One (0% till Jul '06) = £7100
• NSPCC (0% till Dec '06) = £5600
• Capital One (0% till Jan '07) = £5300

I'm looking to move into a largre house (baby #2 due in 3-weeks) after September for around £300k. I've worked out that I need to borrow 85%, which works out to £255k. Assuming my pay rise comes through, this is an income multiple of 4.4. This covers the expenses of estate agents, solicitors, valuations, mortgage fees, etc. I'm going to try and avoid EA fees by selling privately, but have accounted for the worst case scenario.

Now, I've been saving very hard and if necessary, I am in position to pay off Halifax One in July and barring any major emergencies, if necessary also pay off Capital One and NSPCC before applying for a mortgage. After many years, mortgage aside, I finally could be debt-free!! :j

The kind of questions I'm trying to answer are:

• Can I get a £255k mortgage on my salary? I spoke to Intelligent Finance and they said they go by affordability, which with my other outgoings, I know I can afford. Just curious if lenders will think the same? Other than £200/month, the largest other expense I have is £250 on monthly groceries.
  
• Should I clear off my 0% debts before applying for the mortgage? Will lenders view me paying debt off and closing accounts so close to applying badly? I also read a thread that said it is better to maintain a 50/50 (usage/limit) on credit cards. But I presume those are on cards you want to keep.
  
• I was thinking of paying off large chunks of Capital One and NSPCC off (say £2500 each) and maintaining the balance through my application. This gives me a bit more savings for the move. However, I'd only do that if it won't reduce my borrowing capability a lot. Any thoughts?
  
• Does a request for a "mortgage in principal" incur a credit search? IF say they don't need to know about any debts that won't be there in 12 months time.
  
• My day-to-day use cards (Amex and Egg) have fairly low balances (~£1000/~£600), but both have high limits. Is that going to be a problem?

I do apologise for the long post. I'm sure I'll have new questions, but these are the ones that are currently top of my mind.

Thanks in advance,

lalantha

Red_Elle

I can only help with experiences that I have recently had in applying for a mortage and I may have been given incorrect information from some lenders, as nothing is guaranteed until you actually apply for the mortgage properly.

A lot of lenders base their decision on affordability and income. Without going into too much info I was looking to borrow quite a bit in comparison to my basic salary, but I also get a monthly bonus. Even so, some lenders don't take that into consideration, so I shopped around. I was also dealing with a broker and would strongly advise that you contact one, as they will be able to source the most suitable product for you.

Anyway, whilst searching on my own, I contacted Northern Rock. They went through my finances with me and said that they could potentially lend a certain amount, but it did involve a credit check and they could not lend the amount that I needed without refering it to underwriters who could look at the application more closely. This was no good, as I need an AIP the same day, so I contacted Abbey.

They said they do not give AIP's in writing, as they are not really worth the paper they are written on, but would be happy to verify over the phone to the EA that they would 'look favourably' on lending the amount that I needed. They also said that they do not credit check, as you don't want to many credit scores on your file. Instead, they asked me questions about my credit and told me that if I had not had any adverse credit problems they could not see a problem in lending to me. As my current mortgage is with them anyway I decided to go with them. They have lent me about the same multiple that you are talking about no problems. I liked that they did not credit check me until I applied for the mortgage on a specific house. A mortgage is not guaranteed until a survey has been done on a property anyway.

JBsplit

i had quite a few debts when i got my last mortgage when i went it get the mortgage i explained my debts and on paper i couldnt afford the mortgage and the debt repayments so i had the debts added to the mortgage at the time i applyed so instead of a 70k mortgage it came to 80k, i know it works out a lot more expensive to do this but it was the perfect solution at the time and ment that i got the house and repayments i wanted.

lalantha

Hi Red_Elle,

Many thanks for your reply. I like the sound of Abbey - sounds like they have a sensible approach to it all. I'll have to have a closer look at the them.

Thanks.

lalantha

lalantha

Thanks JBsplit. It was one of the options I had considered. But given that I can clear off the debts on my own, I think I might as well do that instead of taking out a larger mortgage. The only reason not to, I guess, is if I want to stooze and somehow offset the savings against the mortgage till the 0% deal runs out.

herbiesjp

You are asking for a high multiple on an income that hopefully will materialise in Spetember.

You also have over £17k on credit cards - the fact they are 0% does not matter, as lenders will deduct an amount from your income to cover these card payments.

So I would suggest paying these off would make your mortgage application, as well as your monthly affordability (no cards to pay each month) more favourable.


4.4 times is on the high side, but is not out of the realms of possibility.

However being able to get the mortgage does not mean that it is necessarily affordable for you, so I would suggest doing a budget planner to see that it all fits in with your expectations.

A word with a good whole of market mortgage adviser, and they should be able to help you with figures for current mortgage costs.

lalantha

Hi herbiesjp,

Thanks for your advice. If paying off the cards is the best way forward, then I'll do that - that's not a problem.

I've got a budget planner in Excel which clearly maps out my monies and I can afford the mortgage (I've plugged figured in from quotes I've got from various lenders). I agree with going with a broker - I was going to get in touch with one (or 2) closer to the time.

Still, a bit of personal research never hurts...

APJ

I'm in a similar position - high lending requirements and high debt. My broker suggested Northern Rock, who disregard credit cards but deduct loans from income before applying the multiple. They'll lend 5x salary on 5 year fixed rates. Check out their intermediary website for all the intricate detail, including lending policy. Otherwise Accord Mortgages (intermediary arm of Yorkshire Building Society) will disregard credit cards and loan repayments in their calcualtions, and again lend 5x salary for long term fixed rates for higher-salaried people with good credit records.

Have a rummage on their websites as it gives all the detail you need. Or speak to a whole of market no-fee broker.

lalantha

Thanks very much! I'll go have a look.

lalantha

Thanks all for the comments so far. Does anyone else have any other advice?