Applying for mortgage but have debts

loo258

Hi everyone. Looking to apply for our first mortgage within a year or so. The problem is I have some credit card debts and an overdraft at the moment. I've added it all up just now and the debts come to £4067.18 (out of £6900 total credit availability). My savings come to £5039.02. Obviously we'll need quite a deposit to be able to get a house (between us we have about £15000) but what impact will my credit card debts have? Is it better for me to pay them all off and start saving again or will it not be very beneficial in comparison to having no deposit?

Any advice gratefully received!

loo258

Has anyone got any input? Sorry to double post but it's worrying me and don't want the question to get lost

Cannon_Fodder

It is not very efficient saving for a deposit if your debts cost you a higher rate of interest than you get from the savings.

Even with 0% CCs which appear to be "free debt", a balance transfer fee of 2% or 3% can negate the interest you gain by saving the equivalent amount.

Better a clean slate, then when you save you really get to keep the interest earnt on it, rather than offsetting it against debt interest.

Plus, having a clean slate, and a year to check over your credit history and ensure it is squeaky clean, will maximise the chances of getting a decent deal.

loo258

Cannon_Fodder wrote: »

It is not very efficient saving for a deposit if your debts cost you a higher rate of interest than you get from the savings.

Even with 0% CCs which appear to be "free debt", a balance transfer fee of 2% or 3% can negate the interest you gain by saving the equivalent amount.

Better a clean slate, then when you save you really get to keep the interest earnt on it, rather than offsetting it against debt interest.

Plus, having a clean slate, and a year to check over your credit history and ensure it is squeaky clean, will maximise the chances of getting a decent deal.

Thanks for this. Will the CC debt actually affect my chances of getting a mortgage? Am I more likely to get one without the debt?

Cannon_Fodder

A small amount of CC might not make much difference, in terms of being approved at all, but it may well deny you access to the very best deals, from the choosiest lenders.

Also, there will be an affordability judgement made, and the payment to service the CC will reduce your monthly disposable income, and therefore the amount you are allowed to borrow, which may become an issue if Bank regulations change and restrict salary multiples or somesuch.

loo258

Thanks. One other quick one - in order to completely clear the CCs I'd need to take money out of my ISA. Would you recommend that? That's the only thing I'm wary of!

loo258

The ISA interest gets paid monthly, if that helps.

Cannon_Fodder

You will presumably need to take money out of the ISA to buy the house? So are happy to lose the tax-free status someday.

Whether it is mathematically better now or in a year, depends on the interest rates, CC vs ISA, any balance transfer fees, etc.

If 2% BT fee, versus 3% ISA. Keep the ISA, as you should have some emergency money, anyway.

If 17% CC, you know the answer, I hope.

CLAPTON

any sort of debt will be taken into consideration when applying for a mortgage.
It won't stop you getting a mortgage but it wll affect the amount usually on the basis of affordability.. i.e. if you have to pay off a loan then you have less to spend repaying your mortgage

many of the mortgage suppliers provide mortgage calculators on their websites; you can input your details (anonymously) so you can get a feel for the effects of debts on the likely mortgage offered.

give a few a try and see the results.