Debt or deposit?

jockass

My oh and I have recently completed the sale of our existing property for £150k releasing 30k equity. In addition to this we have a further 45k in savings. We are looking to buy a house for 300k and our salaries are 50 and 33k. We currently have 12k of unsecured debt across 2 credit cards. My question is would we be better clearing this debt and then applying for a mortgage with a smaller deposit or keep the debt and have a larger deposit. It is more than likely going to be Santander that we will be applying to and I have read a lot of horror reports on here about their affordability checks. Any advice gratefully received!

Dave_Ham

You have read the horror stories and still up for applying with them - they are hard work whatever you decide and not market leading rates so unsure why you would make this call?

In answer to your question, it would depend upon the rates the credit is on and your ability to repay quickly.

I think in your situation my gut says debt is best, although if you are not near a threshold (when you find a home and agree a price I mean) then you may aswell pay off.

Getting to 80% is the big one where the rates are more attractive artificially, although this will rely upon lender selection and the 75% ones are obviously better but the jump from 85-80% makes a big difference..

Good luck

andy.m_2

clear the debt.
It is removed from your affordability checks and borrowing calculation anyway plus you will save any interest you are paying.
You will have access to the 20>25% rates which are still tidy.

Why do you want to go with Santander, surely you would be better off going to an Indy and checking out the best available to you?

We did and the savings are £150 ish pcm which is cash in my pocket thank you very much,

JimmyTheWig

First question is what interest rate you are paying on the debt.
Second question is how you will pay them off if you don't pay them now.
Third question is how did you get in to debt in the first place. [Not particularly relevant, here, but it is a question you need to ask yourselves to avoid it happening again in the future.]

Then go and see a broker.
Get quotes from them based on (a) a big deposit and the debt and (b) a smaller deposit and no debt.
Come back to us with the quotes and the answers to the first three questions.

jockass

We have an erc worth £4800 if we leave our existing mortgage so Santander are the only gig in town for us. We plan to port the mortgage £120k and add to it through a new application additional 120k The debt is currently 50% at 0% for a year and 50% at 6.9% fixed for life of the balance. Our mortgage rate at moment is 5.59 bad decision to fix all those years ago and on the new borrowing will be 4.89. Plan is to leave them in a years time when the erc ends. I am veering towards paying the debt off which still gives us enough of a deposit to get an affordable rate.

dimbo61

Selling you old property for £150K and buying a new property for £300K will cost you what £15,000 in stamp duty, legals, surveys, etc
£9,000 alone for the stamp duty!!
Take that from your savings and you will struggle to get 80% LTV
Could you not buy at £250K and therefore only pay 1% stamp duty and have a LTV of 75% ( getting better mortgage deals as well )

JimmyTheWig

jockass wrote: »

We have an erc worth £4800 if we leave our existing mortgage so Santander are the only gig in town for us.
...
Plan is to leave them in a years time when the erc ends.

When does the erc end?
How far through the buying and selling process are you?
I'm asking because it would probably make more sense to wait until the erc had finished on your current mortgage then you'd be free to go anywhere for the new place. Given that the whole process can take 6 months it might not be too long for you to wait.

We plan to port the mortgage £120k and add to it through a new application additional 120k The debt is currently 50% at 0% for a year and 50% at 6.9% fixed for life of the balance.

Good rates. Well done. How will you repay these debts if you don't use the equity? How long will it take you? How much is on each card? If you haven't got the money to repay the 0% card in full when the rate finishes, what do you plan to do with it?

the new borrowing will be 4.89.

Is that rate dependent on a LTV? Does it change depending on whether you pay off the debts or not? I.e. does the rate go up if you have less deposit?
How much are they prepared to lend you? Does it change depending on whether you pay off the debts or not? I.e. does the amount they will lend go down if you have credit card debt?