Pay off debt or add to deposit

mprcomp

Hi,

I have some debt in credit cards currently around 3K. I need 11K for mortgage which I have sorted. I also have a spare 2k which I can't decide is it best to pay off the debt with this money which is all on 0% credit or put it towards mortgage to make it more likely to be accepted for mortgage.

House Price 110K (So 90% LTV)
My Wage 38K wife 22K

Only other debt is a personal loan for Car of 10K at present.

If any mortgage brokers out there what would they do?

thelem

Have you taken solicitors and moving costs into account? That's likely to be at least £2k, plus the cost of any work that needs doing once you move in. It's also recommended you keep at least three months worth of mortgage repayments savings in case you can't work or the property needs expensive work.

To answer your original question, see http://www.moneysavingexpert.com/savings/pay-off-debts and http://www.moneysavingexpert.com/mortgages/mortgages-vs-savings

Fire_Fox

Most lenders will take your gross deposit (£13K) and mentally subtract your debts (also £13K) to get your net deposit so many lenders will deem you to have zero deposit at present. As thelem says you also need to fund the costs of buying and three months mortgage in case one or other of you is suddenly unable to work.

mprcomp

Yes have all other money for everything else. Lucky I am a teacher and wife is a nurse so little chance to loose our jobs. Surely that deposit - debt would not work otherwise no one at all would get mortgage.

I can't believe there are many people apart from those who bought house 20 years ago that have no personal debt and enough money for deposit in bank.

Any sensible responses?

BitterAndTwisted

A sensible response (which you have already had) is that most, if not all lenders will deduct your total indebtedness from any mortgage-offer. Therefore it makes no sense to have debts of any kind round your necks, even if they're at 0% if you're at or near the limit of what they might be prepared to lend. 90% probably is that limit. A lower percentage could get you a better interest-rate as well, so I suggest you keep saving and apply for a mortgage once you are totally debt-free or prepare for disappointment

Fire_Fox

Why don't you run an advanced search or ask your chosen lender instead of dismissing the truth? You need three months mortgage payments not just in case of redundancy, but in case you fall ill or injured, your wife has a nightmare pregnancy (planned or not) or a sick child and cannot work. IIRC it's only three months on full pay even in the NHS, the state will not pay your mortgage for the first three months that you have low enough income or savings to qualify, and the rules may well become tighter as per a previous Tory government.

Plenty of buyers pay their credit cards off in full every month and save up to buy a car or don't run a car at all. The only ones who need a 10% deposit as savings are FTBs and those with zero or negative equity, those people are indeed struggling to buy and sell which has helped the bottom fall out of the property market.

Notmyrealname

mprcomp wrote: »

Yes have all other money for everything else. Lucky I am a teacher and wife is a nurse so little chance to loose our jobs.

Really? You may want to ask the nurses who've lost their jobs. You may want to ask my aunt who was head of year and SENCO at a secondary school with over three decades teaching who was made redundant a couple of years ago.

Surely that deposit - debt would not work otherwise no one at all would get mortgage.

I can't believe there are many people apart from those who bought house 20 years ago that have no personal debt and enough money for deposit in bank.

Any sensible responses?

Lenders do affordability studies. They look at the payments for the mortgage you're applying for with around a 6% interest rate plus all your current outstanding borrowings and decide whether you can afford it based on that. So you may have the deposit but they may look at your income and projected outgoings and decide it is too risky.

jetblack61

There are people with enough money in the bank and no personal debt to afford a deposit...we just did it!

We both have cars paid for and no credit card/other debt. We saved very VERY hard for our house deposit (10% of purchase price), ensuring we could afford the mortgage payments, given our other outgoings.

The mortgage company will take this into account...if you're paying off a car loan, credit cards, a mortgage and paying the general costs of living...can your joint salaries afford it?

InMyDreams

mprcomp wrote: »

I can't believe there are many people apart from those who bought house 20 years ago that have no personal debt and enough money for deposit in bank.

Ultimately it depends on your attitude to affordability and what you consider an acceptable standard of living. With a joint salary of £60K but debts of £13K, there are clearly things you have considered 'affordable' or even 'essential' in the past which others in the same position would consider 'unaffordable' to them which mean that you don't have a deposit today, where as they might have.

Neither attitude is necessarily the better one to have, but on £60K you are at least lucky enough to have a choice. It's just that others have made different ones.

They are not necessarily happier: you have had the benefit all sorts of things that they haven't been able to afford (in their opinion) giving you a more acceptable standard of living. For example, a car costing over £10K.

Not everyone with a deposit has had it gifted to them / inherited it / earns more than you.

olly300

mprcomp wrote: »

I can't believe there are many people apart from those who bought house 20 years ago that have no personal debt and enough money for deposit in bank.

Pay off your debts especially the credit card debts as now due to tighter lending criteria this really effects what you can borrow.

In regards to your statement I know lots of people who brought their first property without debts to their name.

Even in the boom years when mortgages were easier to get I know plenty of people who brought properties with no debt, and this was why some people were being offered ridiculous multiples.

DannyboyMidlands

mprcomp wrote: »

Yes have all other money for everything else. Lucky I am a teacher and wife is a nurse so little chance to loose our jobs. Surely that deposit - debt would not work otherwise no one at all would get mortgage.

I can't believe there are many people apart from those who bought house 20 years ago that have no personal debt and enough money for deposit in bank.

Any sensible responses?

I can't believe that a couple on a combined income of £60k and with ambitions to buy a house have so much debt and so little deposit.

I think that you need to do a budget and address your spending/saving.