Deposit -v- Debt

Kano_2

HI all, I'm looking at getting my first mortgage. The online calculators I've looked at suggest it's achievable but quite tight. I haven't got as far as speaking to any banks or brokers yet but was wondering. I've got £12k in savings is that best used as a deposit or would I be better advised spending £5k to clear all of my credit cards and apply relatively debt free?

Phil

dawny10

When I got my mortgage last year I had to pay off all my outstanding credit card debts (0% or not!) - it was a condition of the mortgage offer.

herbiesjp

It is difficult to say without knowing what it is exactly you are looking for. Any outstanding liabilities will normally reduce the amount of mortgage a lender will be happy to agree. However, the deposit you have may be the minimum required by the lender for a particular rate/scheme.

rchddap1

The higher the deposit that you have the greater your chances of being accepted for a mortgage. There are also some deals out there that require you to have a certain amount of deposit. Some are as low as 3%, others as high as 25% (or more?). When I applied for my mortgage I had about a £4k loan, but it didn't seem to make a difference. However, I had £7k in savings as well. So, some of that cash went on a deposit for the house and some went on buying furniture. It meant that I had a fixed limit to what I could spend on beds etc... (rented furnished flat before).

When buying your house you will also have to pay Stamp Duty and fees to your solicitor, so the final chunk of my savings were earmarked for this.

My advise would be to sit down and carefully budget everything out. How much do you need for a deposit, how much for stamp duty & legal costs, how much for extra furniture etc... that you'll need. Then anything that is left over you can use to pay off your debts.

herbiesjp

Ultimately it is your income that will dictate whether both are still affordable to you. Both you and the lender have to be happy with the affordability.