Loan vs credit card balance when applying for mortgage

smartalex_2

I will be applying for a first mortgage later this year and currently have 25k of credit card balance, so part of the deposit is effectively 'borrowed'. But if this is fully paid off, the total deposit from me and partner would reduce and give us a a worse LTV.

Payments on the debt are very manageable and I would prefer to just clear it down over the next 2-3 years at 7-800 a month (my net take-home is 5700 a month), rather than clear it faster, have a worse deposit and then build the deposit back up. I'd be quite happy with a 25k fixed rate loan from my bank (premier account with Lloyds) to pay the ccs off, which would then just be a fixed outgoing leaving me with ~5k net cash per month to service a mortgage and living costs, and apply for the mortgage a few months later.

I've heard anecdotally that mortgagers simply treat a fixed monthly obligation like a loan as something that impacts the 'affordability' of your mortgage amount and I would have no issue getting a repayment mortgage of (my share) say 1500 a month when I have 5000 of net pay (after loan) a month. Whereas if I have 25k of credit card debt this is treated in a different way in the calculations and would reduce the total amount they would be willing to lend.

If the lenders in fact don't care credit card versus loan, I would probably keep the cards because balance transfer offers can get the cost a little lower than a fixed loan.

Any advice appreciated.

PS yes, I know I shouldn't have been tempted by the abundance of free / low cost credit over the last few years so don't need a lecture on that . Current total credit card limits are 50-60k and I would cancel some after clearing so I don't have all that unused borrowing potential to scare off the lender.

Thrugelmir

smartalex wrote: »

I will be applying for a first mortgage later this year and currently have 25k of credit card balance, so part of the deposit is effectively 'borrowed'. But if this is fully paid off, the total deposit from me and partner would reduce and give us a a worse LTV.

Increasingly lenders are factoring the amount of outstanding debt into their lending models not just the monthly commitment.

As you say part of the deposit is borrowed. Which is the view that will highly possibly will be taken considering the amount of debt you have. When looking at the product you've applied for in terms of LTV.

Little point in viewing money as being held in separate pots. What matters is the net balance. So little point in fooling yourself. As the lenders won't be.

Dave_Ham

Almost every lender will treat this differently, but almost all will account for this between 3% and 5% of the balance as a monthly commitment. This is usually a lot more than a loan commitment would be..

Get specialist advice, given your income you can probably can get away with what you want.

Additionally, a solution involving paying off some and retaining enough for deposit and cost could be an option if you simply do not just approach your bank and approach the right bank..

Good luck