Pay off business expensed car loan with equity to raise max mortgage lending ?

leicesterfarthing

Hi, newbie here, after some advice please

I have a car loan with a settlement figure of £15k
The car is worth about £13k

It is run for my job, whereby I get a £500 taxable allowance per month PLUS mileage expenses of the revenue maximum of 45p per mile/25p per mile after 10,000 milese

The monthly repayments are £419 per month, affordable because of said allowance above plus expenses.

Recently separated, looking to buy a house with a clear equity of about £70k.

Problem is that the maximum I can borrow is about £105k with the car loan in place. If I were to settle up the car loan, (say 2k in the red) and buy a practical car for about 9k would I be better off?? ie. reducing deposit by 11k to 59K and then getting a bigger mortgage???

Is this a crazy idea? Am i just borrowing the money for the car for say a 20 year mortgage??? seems mad, but no-one will take my car expenses into account for income (they will for the allowance)

I'm confused. I seem to be being penalised for opting out of a company car some years back???

leicesterfarthing

The car scheme was taken out over 40 months with 12 months gone.

The car has to be a large family saloon, presentable, and under 4 years old to qualify for my £500 a month allowance. I do about 35-40000 miles a year... so perhaps buying a "jalopy" not a very sensible idea.

Ideally looking at houses around £190,000 mark, so with only £59k down would leave me with a £131,000 mortage.. should be affordable with no car comittments

Problem is.... those car comittments would come back in a few years time when it needs replacing??????

My income is in the low 40's by the way (as is my age :-)

kingstreet

I've just keyed your data into Halifax affordability calculator.

Income £40k basic + £6k (use 100% as guaranteed) car allowance = £46k total.

Less £419 per month credit commitment

75% loan to value, C pass credit score, 20 year term.

Maximum mortgage amount £166k. If you repay the car finance, it rises to £204k.

£166k + £70k deposit = £236k max purchase price
£204k + £59k deposit = £263k max purchase price

At 5%, a 20 year £166k mortgage is £1,110 per month
At 5%, a 20 year £204k mortgage is £1,364 per month

It may be more sensible to approach this from an angle of what you'd be comfortable paying each month, allowing for changes in mortgage rates, rather than what a lender will be prepared to lend.

leicesterfarthing

Thanks Kingstreet, there is child maintenence of £240 to go out as well... and my income of low 40's includes the car allowance, but the halifax calculator is a good idea for me to try.

I guess the car finance is a hefty lump at £419 and I wasn't thinking of being in this position when I took it out (who is?)

I suppose if I clear the car loan, I could put say £300 of the expenses away every month to pay for a replacement car in a few years time... that seems more sensible than paying a total of £18k off (15k settlement) so that's 3k it would cost me more to keep the finance going.

On the other hand that extra 15k on my mortgage is going to cost me about £700 a year

I also have to think about the 65% LTV required for good rates and for the maximum multipliers.... which means the more cash I put in the better.... confusing eh?

kingstreet

leicesterfarthing wrote: »

Thanks Kingstreet, there is child maintenence of £240 to go out as well... and my income of low 40's includes the car allowance, but the halifax calculator is a good idea for me to try.

I guess the car finance is a hefty lump at £419 and I wasn't thinking of being in this position when I took it out (who is?)

I suppose if I clear the car loan, I could put say £300 of the expenses away every month to pay for a replacement car in a few years time... that seems more sensible than paying a total of £18k off (15k settlement) so that's 3k it would cost me more to keep the finance going.

On the other hand that extra 15k on my mortgage is going to cost me about £700 a year

I also have to think about the 65% LTV required for good rates and for the maximum multipliers.... which means the more cash I put in the better.... confusing eh?

It is the confusion element which made me suggest turning it round and looking at it from a comfortable cost point of view. Only you can decide on whether it will be affordable to meet the mortgage payment and the car finance.

Use a few different lenders' calculators. The comparisons may be valuable.