Have house depost AND debt - what's the best option?

MikeHartley

Ok, here is a quandry I am in:

• I have around 16,000 in debt, spread over 4 credit cards.
• My salary is £39500 per year. Minus tax, pension contributions etc. I take home around £2400 per month after deductions.
• My credit card payments are in the region of £480 per month.
• I have a partner with an income in the region of £30,000 and with debts of around £3000.
  
• I am also about to be given £40,000 from the family as a deposit for a new house.
  
• We are hoping to get a house in zone 3, south London, so looking at £260,000-270,000 for that.

Which of the following should we do?:

• Use the deposit money to pay off my debts, leaving me with a much smaller deposit (around £24000).
• Ask the bank for a larger mortgage (i.e. adding all of our debts into this, but would require an extra £18k-ish on the mortgage), whilst keeping the deposit intact.
• Seek to treat the house purchase and debts separately

terryw

Get rid of the expensive credit cards. The level of debt might even deter a potential lender.

Thrugelmir

Tackle your debts first. No mainstream lender will be interested in consolidating debt into a mortgage advance.

By doing so will enable you to start save and rebuild your deposit. Also will start to improve your credit score.

MikeHartley

And any ideas on whether what would be left of the deposit would be anything like enough for a mortgage - i.e 9%??

terryw

On your joint income with no credit card payments and a few months of parsimonious living , you will recover the capital.

Yes, of course it is wise to buy a house but there is no great rush as house prices are very unlikely to rise in the near future.

MacMickster

MikeHartley wrote: »

And any ideas on whether what would be left of the deposit would be anything like enough for a mortgage - i.e 9%??

No, but as you would not be making monthly debt repayments you should be able to quickly increase the amount of your deposit.

Thrugelmir

In general at least 10% is required these days. The higher the deposit the lower the interest rate.

9ja4life

We initially applied for a mortgage with about £14k worth of debts. The rates offered then were above 5.6% and the maximum we were offered was £200k. We had a £60k deposit and earned about £48k jointly.

We then paid off most of the debts leaving £6k on the HP for the next 3 years. Monthly payment for that was reduced to £89 per month and that was our only debt.

Saved for 6 months more by living very frugally and a contribution from family in lieu of a wedding gift. Deposit went up to £70k. Salaries had also increased to £52k. Lenders were then offering us just under £300k at less than 4%. We sensible borrowed about £150k at 3.89%

I would say pay off as much debt as you can. From deciding to buy to actually buying took us about 10 months - we viewed over 50 properties and pretty much got a bargain as we were in no hurry.

hth