Order of priorities

s85h

Hi,

I'm hoping to begin saving for a deposit for a house. However as a couple, we do have some debts. I know now that lenders are assessing people with stricter criteria so main query is...

We have around £9500 of debt. £2000 in one bank account overdraft, £1500 in my partners account overdraft, £2000 on my credit cards and around £4000 on my partners.

I hope to begin paying this off over the next year as we now have a larger amount of disposable income.

My question is...do I have to pay all of this debt off to be considered for the mortgage? I am a first time buyer and I have been looking at houses in the region of £150,000. I have seen mortgages offering 10% deposit (15,000) with an affordable rate. Do I need to pay off all my debts to be considered? And, if I do pay all of this debt off, is it wiser to keep savings in my current account or leave them in a savings account when it comes to be credit scored for the mortage.

Also, I was refused a loan 2 years ago from my bank, and just over a year ago, I asked for my credit card limit to be increased on all 3 of my cards at the time, and this was not given. Would this affect my scoring badly?

Thanks very much in advance for any help.

Kind Regards

herbiesjp

No you do not have to clear all of your debt, as long as your income is high enough to support all your debts

dimbo61

Check the rates you are paying on the overdrafts and credit cards first.
Little point saving into a savings account or ISA or current earning 2/3/4% if you are paying 19% on an overdraft or 16% on a credit card.
You really must clear the overdrafts first and look at changing the credit card debt onto a 0% card ( most charge 2.5/3% fee ) over 16/18 months and clear the debt over that time.
You also need to build up savings for the deposit BUT you have a large amount of disposable income so stop spending it and save/clear your debts
GOOD LUCK

RufusA

If I was a lender, I'd be a little concerned about your debts. Personal circumstances change, but past history of wishing to increase borrowing on a number of sources is probably a red flag.

However as others have said, all things being equal, lenders are reasonably comfortable with debts (particularly car loans etc.) provided they are affordable. If there is a good recent history of you managing the debts and paying them off they could be sympathetic.

Be warned though, a number of lenders will make it a condition of the mortgage that some / all the debts are cleared. Otherwise everyone could conjure up in effect a 100% mortgage by simply borrowing the "deposit".

Mortgage aside, prudent moneysaving would expect you to have enough savings for emergencies, but otherwise plough all your spare money in to clearing expensive debts (unless stooging of course).

Rufus.

psoley

My partner and myself have just got a mortgage with having outstanding loans and car finance.

As long as your income satisfies requirements it should not be a problem.

s85h

Thanks to everyone for the advise. I am going to look into switching the credit cards onto a 0% and trying to get it paid off.

I just want to know though...does it look bad on my credit history if I apply for credit that I requested my credit cards to be increased and was refused. I requested to all 3 Credit card lenders on the same day to increase my limit. Is this a black mark that could affect me?

Thanks in advance

nrsql

Probably depends on how closely your history is looked at. They might think you are increasing your debt to save for a deposit (in effect borrowing the deposit).
From what you say it sounds like that might be what you are doing.

You probably should look at whether taking on a house is a good idea until your outstanding debt is under control.

You might have to declare the loan refusal. Probably the reason why the loan and credit card limit increases were refused will still be the issue more than the refusal.