Deposit vs Debt Ratio - Ftb

thewinkshow

Hello,

Looking for a little advice regarding getting a mortgage. I am single with no dependents
and earn 17,000 per annum, this is likely to increase in the next few months, bring home pay is about 1160 per month.
debts - I have around 8500 in debts on a life of the balance card at 5.94% per annum, this costs me around 140 per month - I have no other outgoings (or wont have once I move out from parents home)
My credit score with experian is 999 out of 1000 with no bad history whatsoever.
I have a 20k deposit and I am looking at houses in the 85k region, so hoping to get a mortgage for around 65k
My question is would I be better paying off the debt but then having a smaller deposit? I know I am paying 5.94% interest on the debt e.c.t, but the 20k deposit gives me extra clout when going for a mortgage due to the LTV rate, I am putting down nearly 25% which according to the websites qualifies me for better mortgage rates than if I only had 10% deposit, so I am trying to weigh up the saving on the mortgage rate vs the current debt overall.
Also I have read that the lender looks at affordability, any advice on weather my mortgage is feesable on quite a small wage? I have read that the lender looks at your current debts, so obviously my 8500k debt will go against me affordability wise becuase I am already servicing a debt, but my question is how much of a real impact would it have? could it be the difference between getting accepted or rejected?
I have read that lenders wont accept you if you current debt commintments exceeds around 16% of your current wage, I have done the calculation and my debt works out to be around 6% so hopefully that is good news, providing I have done my sums correctly, please feel free to add correction.

Or have any of you a different way of dealing with the debt/deposit issue, how would you play it for maximum effective? Do you think I am likely to be accepted based on the above info?

Also what mortgages would be the preference, variable or fixed, I know the variable will be cheaper due to the base rate being so low, but what are your thoughts on it rising in the future? surely it must do soon.

How much would you budget overall as a ball park for bills? and what percentage of income should you ideally have left per month to ensure I am not over stretching myself?

Any advice much appreciated.

thewinkshow

any advice?

nick1977

thewinkshow wrote: »

any advice?

If it were me I would get some advice or quotes as things stand, and then see how they would change by paying off some of the debt.
I would say that if you can pay off the credit card without your mortgage rate going up substatially that is what I would do. Remember that the mortgage rate will normally only be fixed at whatever rate you have for a year or two, and will then drop (or rise!) to the standard or variable rate.

I found Nationwide were quite good at this, allowing you to get an estimate based on keeping the credit, or paying it off.

As far as affordability goes, I had a mortgage that was 55% of my take home when I first got divorced (about £800pcm) and I coped OK but I was quite careful with my money.
You need to remember the monthly bills - council tax, water, electric, gas, phone, TV, insurance, car, oh and food!
Work out how much these are going to cost, allow a bit for leisure and rainy day saving, and the rest is what you can afford on your mortgage.

When you get around to moving, my advice would be to set up a second bank account that you transfer the total amount for all your commitments into each month. This has worked well for me, and makes it easy to see what you have left for the month to allow for saving and leisure etc. Plus you should never get a failed direct debit.

Good luck!
Nick

thewinkshow

Thanks for the advice

I have done a few quotes and the there is not much difference in the amount I can borrow with or without the debt, this leads me to think its mainly based on my income regardless of my debt.
I am looking to borrow around 65k, which seems below the amounts I am being offered, so hopefully it will be okay, I am looking at houses in the 85k region and looking to put 20k deposit down.
its seems putting the full 20k down, (20% down) seems to work more in my favor than if I cleared the debt and had a smaller deposit.

What would you budget for as a total on all bills for a single person?
would 300 a month cover everything?

dimbo61

Sorry but how can anyone work out your budget for the month!
Whats the council tax on the place you plan to buy?
Is it close to work or 80 miles away!
Do you shop at farm foods or waitrose !
Can the person you are buying off give details of gas/elec bills.
House insurance,tv licence, water rates, foods, phone/broadband ( best deals)
Life assurance, critical life insurance,

nick1977

As dimbo61 says, it is difficult for anyone to estimate what your outgoings are going to be other than yourself. Use the list I gave above as a starting point.
If you have never paid any of the bills before in your life, remember that nearly all of them vary depending on the size of your house and your shopping habits.
The only constants would be TV licence, possibly water rates if no meter is installed, and the council tax. You can get an estimate for council tax by looking on rightmove to check what bands the properties you are considering are in, and then checking with your local council how much that band costs. If living alone you can deduct 25% for single person discount.

My total bills at the time I was single (including petrol and food) were about £500 pcm before mortgage payment, but yours could be completely different.

Hope this helps
Nick

nick1977

Looking again at your inital question, what it boils down to is, do you want to borrow £8,500 on your mortgage at the mortgage rate (which is possibly lower now, but will change over time) or do you want to borrow £8,500 on a credit card with a fixed L.O.B. rate?

Also the CC is costing you £140 per month, but if you added the £8,500 a month to the mortgage it would be a lot less per month equivalent, but over time would cost you more in interest.

I guess it depends really on how comfortable you are financially. If you have plenty of spare cash at the end of the month, keep the credit card as it is. If you think things will be tight, then maybe pay off the card and add it to the mortgage which should save you about £100 per month, although cost you more in the long term.

No doubt others will have a different take, but at the end of the day there is no right or wrong as such, it's what you're most comfortable with.

Nick