Should we put our credit card debt into a personal loan before applying for mortgage?

changes

Hi,

My husband I are looking to move in the next year which will mean needing a bigger mortgage.

Unfortunately we are in a huge amount of debt £15000 on credit cards and we pay £305 per month on a loan. We never have any trouble making repayments and have never missed any. We're lucky to both be on relatively good salaries.

Using the A&L mortgage calculator, even with our debt we can get a fair amount on mortgage. We already have a mortgage with A&L currently. However I noticed that if we put our 15k credit card debt into one of their personal loans for 5 years, the mortgage calculator says that it will provide a much bigger mortgage.

Now don't get me wrong, we dont' want a much bigger mortgage. We just want the best chance of getting the mortgage we require. We have a 25 percent deposit which I hope will help. But I'm just wondering whether our 15k debt consolidated into a 5 year personal loan would look much better for our application rather than 15k debt spread on 4 credit cards.

Can anyone advise me on whether two personal loans (all being paid with no problems) would look better on mortgage decisions rather than debt juggled on credit cards? The personal loan is at a good rate and may benefit us anyway. But I am wondering how it affects our credit rating/how we look to mortgage providers.

Thank you for any advice.

Cannon_Fodder

Lenders view debt as the source of deposit, nowadays. Things have changed since your mortgage was taken out.

They will either not wish to offer a mortgage, or require the repayment of debt before releasing funds, impacting your LTV.

Being your existing lender, A&L may be less strict. Only way to know for sure is to ask them.

Better option than moving debt around, would be to reduce it somewhat.

TrickyDicky

If you paid off your debts with your savings - your problems would go away, except having to wait to save up again.

dimbo61

Hi you have £15k on credit cards and a loan thats costing you £305 per month and you think you could afford to pay a bigger mortgage on top !
You and your OH need to take a long hard look at how much you spend and earn each month.
Yes you have 25% equity in your existing home but I doubt that A&L will be willing to give you a bigger mortgage with your existing debts

Let_Us_See

Let's be practical. Existing credit card balances and/or bank loans, or any other existing financial commitments will NOT stop you obtaining a mortgage, all they will do is reduce your borrowing capacity.

It is simple to work out. Add up all the monthly payments you make for your loans and credit card - use 5% per month for credit card balances. Multiply this by 12 (to annualise payment) and then deduct this figure from your joint salaries. You can then apply this figure to the normal lender's income multiples. I am surprised you are only paying £305 per month on credit card balances of £15,000 - this equates to only 2.03% per month.

Whether you should change your card balances to personal loans is your choice. At least you will be repaying capital if you have a personal loan, rather than just interest on your card balances.

Which is best to secure a mortgage? Find out how much your personal loans would cost per month and then complete the same exercise as above? Alternatively, if you have sufficient income, you could consider consolidating your credit card balances in your proposed new mortgage?

getmore4less

How are you going to pay for the move, more borrowing?

What incomes and mortgage(new/old) and loans are we looking at?

changes

Thank you for your replies. It certainly helped us think. We have decided to pay off our credit card debts with our saved deposit. So instead of putting down a 25% deposit, we will put down a 15/20% deposit. This will mean only one mortgage product is available to us through A&L and the rate is higher, but I think in the long run this will be best. We can still afford the 15% deposit rate and we will be debt free from our credit cards.

Should also mean we get more easily approved for a new mortgage with only our personal loan remaining. Hopefully this won't have too much of an impact and as 'Let us See' said, will only reduce the amount available to us.

Thank you.