Unsecured Debt

cookie78

I was wondering just what effect unsecured debt such as credit cards, store cards, loans has on a mortgage application. Say for example you had 7k of these debts would a mortgage company insist you cleared these 1st, would they take 7k off the total amount they would lend you or do they factor in an allowance for them in your wages and remove from your wage before making a decision or does the fact that the mortgage is secured mean they are not overly concerned about them? Just always wondered how this works.

CLAPTON

why not use a 'how much can I borrow mortgage calculator' on some of the lenders websites and see how the debts affect the max loan.

Wh05apk

They will normally gross up the repayments on them to an annual figure and deduct from your income, most will use 3% of credit cards as a monthly payment, so if all on credit cards, they may deduct £7k x 3% x 12 so £210 x 12 = £2,520 deducted from your income, which if you are looking at 4-5 income, could mean they reduce the amount they could lend you by £10-12k (because of a £7k debt!)

cookie78

Wh05apk wrote: »

They will normally gross up the repayments on them to an annual figure and deduct from your income, most will use 3% of credit cards as a monthly payment, so if all on credit cards, they may deduct £7k x 3% x 12 so £210 x 12 = £2,520 deducted from your income, which if you are looking at 4-5 income, could mean they reduce the amount they could lend you by £10-12k (because of a £7k debt!)

Super thanks for that, it explains it very well :money:

Thrugelmir

cookie78 wrote: »

or does the fact that the mortgage is secured mean they are not overly concerned about them?

The amount of unsecured credit or usage of same i.e. overdraft. Gives an underwriter an indication as to the attitude of the potential borrower(s) towards money in general.