Unused credit affect on mortgage application

kick

Hi, Im going to be applying for a mortgage soon and my adviser said I'd be able to get a house at around the £100,000 mark with my £10,500 deposit. He didn't seem bothered that I had quite a bit of unused credit but as this is at the top end of what i could borrow is it a good idea to cancel a credit card or reduce my credit limit.
I have two credit cards totaling £14,500 of credit but only use them for a couple of hundred a month and pay them straight off.

I've heard conflicting opinions on whether it helps or hinders so any advice would be great!

holly_hobby

Lenders will take account of all existing credit commitments, and importantly, also your access to rolling credit such as credit cards, flexi-loans etc, and the balances available to you.

This is because post completion, you may of course use or even run up your credit facilities, which will obviously have a negative impact on your monthly expenditure (in that if will obviously increase with regards to repaying the os ccard/flexi loan balances), and may accordingly affect how you service your mortgage.

I wouldn't cancel your cards unless your AIP or full application comes back with an agreed lending limit that is below your requirements. At that point, I would ask your broker to speak to the UW to determine if closing one or more of the rolling credit facilities would increase your borrowing capacity, and by how much (as pointless doing it if you'll still be short !) .

Hopefully, you will sail through without having to do so, but you have some guidance if any affordability issues raise their head !

Hope this helps

Holly x

kick

Thanks Holly! That's all very helpful. I didn't realise there might be the flexability to do that once I'd applied.

holly_hobby

Yes that shouldn't be a problem - if this is the case they will usually make it a condition of the mortgage offer that the os balance is cleared and facility closed at (or within a defined period post) completion. (although they don't always put in place any post completion checks)

Hope this helps

Holly

thomasdown

Hi there,

I was in a similar situation as you were last year when I applied for a mortgage and I worried about this to. I had 2 credit cards each with a £5k limit but nothing on them and would pay off in full each month. I only used them because they were 0% for 15 months and I purchased items and then paid off monthly till the balances were 0. I should have reduced the balances but thought it was nice to know as a safety buffer. Anyway HSBC who we got our mortgage with, the mortgage advisor in branch said as long as they are maintained in a excellent manner i.e. no late payments etc then it shouldn't be a problem? He said to us if you owed thousands on them then it would cause a problem. I can't say all banks have this approach but they were very re-assuring. I also had thousands of pounds in available credit with catalogues though which I knew I had accounts with but only purchased 1 item years before when they have a promo on like 60% off etc and paid the item in full but didn't realise they keep hiking your credit limit up, never received statements I assume because balances were 0? Shop direct group were the culprits (very, littlewoods etc) imagine my shock when I found out I had over £15k available with these which I never used. I did cancel these accounts but left credit cards open? Something to add though I didn't have a loan or any sort of on going finance like car credit and me and fiancee got accepted with HSBC no problem, who we heard are very picky about who they accept?

Hope this helps

Tom

kick

Thanks Tom that makes me feel more confident.

kingstreet

The only lender we regularly hear about which has problems with unused credit facilities is Yorkshire Building Society and its off-balance sheet specialist Accord.

They appear to routinely reduce the borrowing power of those with "nil balance" credit cards, despite them owing nothing.

In general, lenders don't make such a reduction if you have no outstanding balance. If you do, they typically take 3% of the outstanding balance off your income before applying any multipliers.