Advice needed - working towards mortgage

littlerussell

Any advice on the following?

Hoping for a mortgage on a £120k-£130k property in 12 months time or so, looking particularly at Yorkshire Bank 90% and 95% FTB offer.

Salary will more than cover this in terms of income multipliers.

Current position:
£10k savings
£3.5k cc debt (currently paying £100/month, a little above minimum).
Ability to save approx £400/month after current rent and commuting costs (which are both very high and would both be reduced significantly if I relocate closer to work).

Should I

(a) Use the £400/month to pay off the cc, which will leave me with £10k savings by the start of 2013 (£6-7k deposit = 5% with up to £3k left for expenses, furniture, etc)

(b) Use the £400/month to save more, which would mean I could access 10% deals (would have approx £14k therefore 10% deposit)

I really do need to move asap, so taking two years to do both (pay off cc and raise another £4k) might not be an option.

I have an exemplary credit history (never missed any payment!) and a good salary which easily covers a £120k mortgage.

kingstreet

Normally, I'd say pay off your debt first. However, the ability to get to 10% deposit to give you access to more lenders and better deals is possibly going to be of greater value to you at this time.

Here's an example.

A 95% mortgage for a purchase of £120k is £114k at Yorkshire Bank's rate of 6.19% (3yr fixed - no choice) or £748 per month on a 25 year repayment mortgage. This carries mortgage fees of over £900.

A 90% mortgage for a purchase of £120k is £108k and will see a choice of products around the 4% mark (fixed or tracker) and the option of lower fee/higher rate or vice-versa, whichever is most sensible for you. On a 25 year repayment mortgage, the monthly cost is around the £575 mark.

The cost saving, £170 per month, could be used to help to repay the credit card debt once you've moved in.

ACG

I think to some extent it would depend on your income.

If your income - CC repayments is still enough for them to lend to you, then it could be better to save it. If it isnt then you might be best trying paying it off. Going off what you have said it would seem the first option would be fine, but if your unsure and youve decided on yorkshire bank, check with them whether they would allow it.

littlerussell

Thank you.

The Yorkshire Bank mortgage calculator is suggesting that I can borrow up to £160k when I put in my salary & net monthly income after subtracting £100/month card repayment, so am I correct in assuming that the cc debt would have little impact on getting a mortgage for £108-£114k?

Another thought I have had since the original post would be that if I have £14k savings + £3.5k debt by the end of the year, I have the option of playing it both ways at that point ... ie apply for 90% and if the cc seems to be a problem, pay it off in full from savings and try for 95%.

Does that sound logical?

kingstreet

Sounds alright to me. As I said, I would avoid the 95% option if at all possible.