whats better no debt or larger deposit?

Brodiebobs

We are thinking of moving in the spring next year (if we can sell our house that is!)

We currently overpay our mortgage by £150pm, are saving £200pm towards moving costs and in our monthly budget has another £200pm 'spare' plus any overtime/extra money earned.

We have around £4,500 on 0% credit card and this is already included in our budget to be paid off before the offer ends (sept 2013).

What would a lender prefer us to do? throw all money at the card and get it cleared before we apply, or save/overpay the spare so we have a larger deposit/equity?

Wh05apk

It will be down to your income and size of the deposit, if you can get the loan down to be under an LTV threshold it may be better to put down a larger deposit, provided your income is sufficient for the lenders affordability with the card.

Brodiebobs

thanks. We fell out of affordability from halifax as they put down 10% or the loan as monthly repayments... would this be right?

We earn £26,000 between us, with some tax credits etc on top. We want to borrow around £90-100,000 and at the moment on conservative figures have £13,000 equity+savings, obviously this will go up with the continued overpayments.

Brodiebobs

any more advice?

Wh05apk

Brodiebobs wrote: »

thanks. We fell out of affordability from halifax as they put down 10% or the loan as monthly repayments... would this be right?

Can't see why they would put down 10%, it should have been the actual repayments.

Halifax are curently a long way off being competitive, there are much lower rates out there.

Brodiebobs

thanks so do you think it would be better to save deposit rather than pay off debt, and does the affordability look ok? we have good credit scores, no missed payments etc

Thrugelmir

Ultimately no debt is the best option to aim for. Given that demand for mortgages will continue to exceed supply. Present yourselves as the ideal borrowers for lenders to do business with.

DVardysShadow

We have seen debt reduce monthly affordability to the extant that the amount of available loan is reduced by more than the debt. In your position, I would be making sure that I had enough spare to wipe the debt just before applying. Although maxing out a 0% card and putting the money to earning for you is good sense in general, doing it when you need a mortgae deal is not so good.

ehatn10

thank you for sharing useful information..:)

RenovationMan

I'd look at your LTV and if I were close to breaching a significant threshold that would open up more of the mortgage market (i.e. if you were close to an LTV of 80%) then I would apply all my efforts to increasing the deposit. If you're a mile away from a threshold (i.e. if you had a 10% deposit and no chance of hitting a 20% deposit), then I'd apply my efforts to reducing debt.

In an ideal world I would try to be debt free before I buy a house because there are all sorts of unexpected costs and money is almost always tight for the first 2 years after a house move.

Brodiebobs

thanks very much, doubt we'd be able to save enough to break the 20% barrier but i will focus our efforts on reducing the debt, as its at 0% it makes more sense to save in a decent savings account and pay off closer to when we have to apply.