what to do with £10.000 to get a morgatge

gemmacots

Hi, I was wondering if anyone can help me. I am downsizing to reduce my mortgage and am paying around 60% deposit on the property I am going to buy so I only need to borrow a morgatge of 40%.
Our debts are : A £10.000 loan and £20.000 in credit cards (I know, nightmare!)
plus £3000 authorized overdraft. Never missed payments on any of these debts.
My father in law has given us £10.000 to help us out.
My question is, what should I do with this £10.000 to make it look better for me when I apply for the mortgage? as we are self employed and am worried with all our debt this will go against us.
Should I clear the £10.000 loan? as this is 24.6% APR, much higher than my credit cards.
Or should we sit on the £10.000 so it looks like we have savings?
What do you think would make our situation look more favourable in order for us to get the morgatge accepted?
any help appreciated. thanks

Wh05apk

All down to your income, the cheapest borrowing will be on your mortgage, so why not consider lumping all the debt to your mortgage, and overpay, as if you still had the loans/credit card?

If your income is not enough to consider this, then it will certainly not be enough to keep the loans.

gemmacots

so do you mean ask for a higher mortgage to pay off the debt and pay less of a deposit?

That sounds like a good idea. If I were to do this, what should I do with the 10.000 in the meantime? Do you not think I could use this to pay off something to come across as more favourable to the mortgage company, or does it not matter what debt I have? thankyou

Wh05apk

Doesn't matter what debt you have, if you tell them it will be repaid, they will not then deduct it from your income to calculate affordability.

Even if this means you will have a 60% mortgage instead of a 40% mortgage then you will probably still be saving money.

gemmacots

But I thought they would want to see my last three months statements? Is that not to see what is going into my account and what is coming out?
So you are saying they don't care how much outgoings you have, what matters is the taxable income I get? ( which is around 36.000 this year but should be more next year ) and the mortgage I am after is around £100.000.

I just thought if I could reduce some of my debt they would see I have less outgoings each month so would be able to afford more.

(by the way, I already have a mortgage in the house I live which is double what I would be looking to get with the downsize of property and would possibly port the morgatge, just thought I would give you the full picture) thankyou for all your help by the way, it's great!

Wh05apk

If they ask to see your statements generally it is to see how you conduct your account, not what commitments you have, they should be picked up from the credit report.

If you keep your loans/CC's then if we work on 4x income, they might lend:

£20k (cards) *3%= 600
£10k (loan) = 400??

so commitments of £1k pm or £12k pa, deduct that from your £36k income = £24k * 4 = £96k, so could possibly be over their limit.

If you add to the mortgage, you would need £130k / £36k= 3.6x, so within their criteria if they work to 4x multiple.

With regards to your £10k, now, I would ensure you have some savings to fall back on in say a cash ISA, and then possibly repay part of the loan if it is 24%