Mortgage and credit card help please!

VT82

I would really appreciate some quick mortgage help please.

First the background – I have a house with a friend but we are planning on selling in the Spring. At this point, I will probably move in with my OH, but I am thinking about still buying another house, whether it be a ‘let’s port my cheap mortgage and have one in case we’re not ready to live together then’ or ‘let’s have a buy-to-let to stay on the property ladder and have it as a back up in case the worst happens’.

Financially, I have about £14k in instant access savings (growing by about £300 per month), £11k in instant access ISAs, and should get around £13k from the sale of my house once the mortgage and all fees are paid. I would probably want to buy for about £125k if I buy another house (and still have some emergency savings left of course – in ISAs to keep those going). I earn £30k a year. If I move in with my OH, I guess I will be paying around £400 a month towards mortgage and bills. As a rough guess I reckon I would get £550-£600 pcm on a rental property.

What I need help with is what to do about my credit card. I have about £4.3k on an interest free credit card, whose 0% period will finish around February. I’m not bad with credit at all, and only have this because I was buying a car in March, and thought I would make the most of my good credit by putting as much of it as possible on a 0% card – to keep earning interest interest on my savings and to get LOTS of Clubcard points

I have seen the new Barclays 0% CC deal on this week’s email, and think it would be perfect for me IF doing a balance transfer is the right idea. If I don’t intend to buy a house, I would be better off doing a balance transfer, as I could get more interest on my savings than the balance transfer fee (after cashback). What I would like help with is for someone to tell me what would be the right thing to do if I WAS to buy a house? Am I better paying off my credit card so that, although I will have £4.3k less for a deposit, I won’t have the payments affecting my affordability assessment? Or am I better off transferring it, meaning I have a higher deposit and hence lower LTV, although they will count the debt repayments against me for affordability?

I know different lenders count credit card debt repayments differently for the affordability assessment, but I’m sure there has to be a right answer.

Your help is appreciated. Sorry for the long post!

BadgerFace_2

The only way to be sure it won't count against you is to pay it off. If your case was marginal for some other reason, it may come back as a fail and you'd have to approach another lender, maybe with a higher rate...which kind of defeats the object.

What you could maybe do is tell the mortgage company IF they have a problem, you will pay it off, this is what I have done; it turns out they didn't care.

VT82

But if I pay it off instead of transferring it, it WILL count against me - by virtue of me having a smaller deposit and hence a higher LTV.

I'd feel annoyed transferring it interest free for 16 months, and incurring the transfer fee, only to repay it after 5 months so that I could pass a mortgage assessment...

I suppose I'm asking if any mortgage experts out there could recommend me a course of action now (the optimum time for sorting out a balance transfer before I have to either pay it off, or pay interest to keep my options open), rather than waiting until I'm actually faced with a mortgage application.

Thanks.

shortchanged_2

VT82 wrote: »

But if I pay it off instead of transferring it, it WILL count against me - by virtue of me having a smaller deposit and hence a higher LTV.

I'd feel annoyed transferring it interest free for 16 months, and incurring the transfer fee, only to repay it after 5 months so that I could pass a mortgage assessment...

I suppose I'm asking if any mortgage experts out there could recommend me a course of action now (the optimum time for sorting out a balance transfer before I have to either pay it off, or pay interest to keep my options open), rather than waiting until I'm actually faced with a mortgage application.

Thanks.

The problem is the credit card is a debt that will also count against you for any mortgage application.
Also the point is you will have to pay it off someday.:)

VT82

I don't dispute either of those facts. I could obviously pay off my credit card debt any time I want from my savings. I just want to do it at the most money-saving point. I'm not a creditaholic - I've cancelled perfectly good credit cards and reduced my limits this year, as I've not needed any credit other than what I get interest free, or from which I get cashback or rewards for using.

But there are shades of grey here; I have 'good debt'. And I don't think it's a simple 'no' as to whether or not I should extend the good debt. But I'm happy to admit the right answer might be 'no', once someone with more knowledge than me about mortgages has evaluated the options.

Thanks.

BadgerFace_2

I think what you're looking for is for someone to say that it shouldn't effect your mortgage application...which nobody could possibly guarantee for you.

It massively depends on what your exact LTV will be and what effect the CC balance has on the amount the bank will lend you. You risk two things

-Repay the credit card and it takes you into a higher LTV bracket i.e. from a 75% mortgage to an 80% mortgage, which will have cost implications.

-Don't repay the debt, stay in the 75% bracket, but the bank may not be willing to lend you as much as you want due to the debt.

If you spent 125k, putting down 20k, with the rest for fees etc, then that gives you an LTV of 84% and a borrowing ratio of 3.5x your income. In this case, repaying the card would put you up to a 90% mortgage and probably cost heavily in additional interest, so I would not repay the card unless I HAD to.

You need to find a house, then talk to an IFA, or post the specifics on here.

ALSO- Nobody is saying it's 'bad debt' but a lender still will take it into account as one day you'll have to pay it back!

Cannon_Fodder

Pay it off and get a cash-back CC, so you get something in return rather than keep paying for balance transfers.

VT82

Cannon_Fodder wrote: »

Pay it off and get a cash-back CC, so you get something in return rather than keep paying for balance transfers.

I already have cashback/rewards credit cards for spending (Halifax Clarity for 5 quid per month on a 300 spend, and Tesco Clubcard for the excess - wasn't going to be spending enough on Amex now they moved the goalposts to warrant using it, so cancelled the card). I see that as being a completely separate issue to this ring-fenced 'good' debt. And keeping on paying for balance transfers can, and in this case will, be negated by the extra interest I get on my savings.

I'm not asking for someone to say it won't affect my mortgage application. I have pointed out that I KNOW it will be an issue, and am just asking if anyone knows if having some credit card debt, or having a smaller deposit, would be a bigger issue.

Thanks.

BadgerFace_2

Sorry, but you seem obsessed with this being 'good debt'; it's not, it's debt that at the moment suits you and is working for you financially. At the end of the day, there is either an 'acceptable level of debt' or an 'unacceptable level of debt'. It will be different for each lender. Banks aren't obliged to continue to let you finance this debt on 0% cards, so make sure you have the savings to pay it off if and when necessary.

I put 30k a year and 4.3k of debt into a high street mortgage calc and the results were-
Without debt, they would lend you £130,600, and with £112,600.

VT82

Regarding the need to refinance 0% deals continually - after 1 year I'll have got it down to £3k just by making the minimum payments, and I'll still have been able to save £200-300 per month (plus existing savings retained rather than going in the deposit), so even if I couldn't refinance it at 0% then, I'd have enough to pay it off after savings. Or there is always the option to *knock me down with a feather* actually pay a bit of interest on it if I couldn't repay in a lump sum...

Thanks for the info on affordability. So either way, if I want to buy a £125k place with a 20-25% deposit, having a bit of debt shouldn't be an issue. In that case, I'll do the balance transfer and keep my savings higher - if I don't buy, I've been better off keeping the money in my savings and earning more interest than the balance transfer fee, and if I do buy, I can aim for a 75% LTV mortgage instead of an 80% one and still keep a decent amount of savings.

Cheers.