Higher deposit or pay off loan?

sparkscw

I am back to saving for a house now and wanted a quick bit of advice on the best way to proceed.

I recently got a £10k loan and now can only get a mortgage of around £70k (last time I checked) with the £10k deposit that leaves me looking for a property of £80k which isn't really viable.

Before I got the loan I was looking more around the £105/£110k mark which is more reasonable.

So question is, do I put down a £15k+ deposit and hope I can get the best mortgage possible when buying or am I better off paying off the remainder of the loan then only putting a 10% deposit down (provided 10% mortgages are around at the time that is)

Hope that makes sense.

Basically, should I be aiming to clear my debts and put down a 10% deposit or just keep the debts and increase the deposit fund to around 15% maybe 20% of I'm lucky?

I can afford a mortgage on top of my current outgoings but must admit things were a lot easier before the loan outgoings :rotfl:

The loan was for a car so I do have assets, along with motorbikes that I own outright so I'm not really considering myself "in debt" as I can clear everything and have a reasonable amount left over, but obviously don't want to be living on a shoestring once I buy a house.

shortchanged_2

sparkscw wrote: »

The loan was for a car so I do have assets, along with motorbikes that I own outright so I'm not really considering myself "in debt" as I can clear everything and have a reasonable amount left over, but obviously don't want to be living on a shoestring once I buy a house.

The problem with cars and motorbikes (unless they are classic/rare models) is that they are deprecitating assets. Therefore the longer you hold on to them the less they are worth.

sparkscw

By the way, I've just looked and I got the loan out in October 2010, after 9 months to pay it off is just over £8000 This would probably leave me with about £3000 left over and approx £13k worth of vehicles (at realistic sale value) freeing up the £337 a month would make saving a lot easier and I could potentially save £500 a month at a minimum which would bring me back up to around £10,000 in about a year thats without selling any vehicles/things/private work/extra savings.

It kind of makes sense to pay it off after the 9 months and save like mad but it's a big concern wiping out most of my savings :eek:

sparkscw

shortchanged wrote: »

The problem with cars and motorbikes (unless they are classic/rare models) is that they are deprecitating assets. Therefore the longer you hold on to them the less they are worth.

Yeah I appreciate that and don't mind losing some money on them as they are worth it in fun/use etc. I've put a fairly realistic current resale value at £13,000 for everything. Loan is worth £8,000 (in a couple months time) and I have around £10k savings.

I guess what you're saying is it's better NOT to have a loan on a vehicle as it'll only depreciate so best to clear the loan and work on the deposit again?

shortchanged_2

Well if your desperate to buy a house I would seriously consider getting a cheaper car and trying to clear the debts, which as you are aware impede the amount of mortgage you will get.

You may well have to suck up some losses as the cost of repaying the loan will almost certainly be more than what you will sell the car for.

sparkscw

Clearing the loan is £8093 if I wait a couple of months, should get around £8500 maybe £9000 for the car (Nissan 350Z GT) webuyanycar offered almost £8k a few weeks back (probably less now mind..) but to be honest I don't plan on selling the car. I will sell one of the bikes, possibly the other one if needs must (total of about £4500 if I sell them both now)

I'm not /desperate/ to buy a house but I am desperate to get on the right track to buying it, and if that means clearing the loan is the best option then I want to get it all done ASAP so I am in a better position to buy if the right house comes up (my mums an estate agent so sometimes something crops up that's perfect but at the minute I can't move quickly if something came up) clearing the loan should leave me with around £900 a month disposable after rent and living costs so I'd have the potential to save a fair bit if I'm vigilant. Just the prospect scares me, although I'm struggling to save at the minute so maybe it would work out for the best.

shortchanged_2

But don't forget if you do sell your car I assume you will need a replacement so that's where your loss comes from.

sparkscw

shortchanged wrote: »

But don't forget if you do sell your car I assume you will need a replacement so that's where your loss comes from.

No, car and bikes are fun only, I have a company van with private use for the day to day stuff. Sorry for not making that clear earlier.:o

sparkscw

Any other thoughts on this?

nict83

hi i am in the same boat i have a loan with two years left of 5k which with 4 months solid saving I can pay off. I already have 8k saved up (well its actually my profit of the house i share when its sold hopefully) so unsure whether or not to add that 5k i could save up to the deposit or to clear the loan and stick with the 8k. Think what I am going to do is put the money away and then go back to the bank and say I can either pay off loan or put towards the deposit what gives me the best rate. So if I was you I'd sell the car but not to webuyanycar try a classified ad on ebay its £15 for 28 days or free ones lile gumtree, adtrader and freeads

TrickyDicky

sparkscw wrote: »

Any other thoughts on this?

With a 10k loan and 10k in savings it will look to the lender that a loan is a source of your deposit. This is not allowable.

So, unless you clear the loan, no chance of a mortgage.