FTB - Available credit and mortgates

macarena123

Hi

Question from a FTB buyer here, looking for some advice.

I was reading the thread on stoozing, which made me think. I have 2 credit cards, which I've had for close on 15 years. No defaults, etc, and I've regularly paid them down. At the time of completion I should owe little to nothing on them but will my available credit be counted against what I can borrow on my mortgage application?

Wondering if I should get the credit limits reduced, as over the years they've been upped so they are pretty substantial now (over 10K each)?

THanks in advance for your help :-)

bowlhead99

I wondered this myself last year as a prospective FTB - the affordability calculators that allow you to put in income and various types of outgoings don't have a box for 'empty space on credit cards'. They ask for the total card balance which won't be repaid on completion, with every £1000 of credit card balance having around the same effect on max borrowing as an obligation to make £30 of monthly personal loan repayment. (i.e. ~3% of card balance pm is assumed, though this might change from one lender to another)

The 'how much can I borrow' calculators are always clear that whatever theoretical amount you can borrow is subject to credit score and product criteria etc. I guess it would be at this stage that they see the available credit you have on your credit report and decide whether they like it or not based on their own magical underwriting criteria.

As I couldn't find any definitive guidance, I thought about what I would do when considering someone for a loan. If you have 60,000 of spare CC credit presumably that is a risk for them - but at the other end of the scale if you only have £200 of spare credit, things could quickly become unaffordable for you if you lost your job temporarily and could not then apply for a credit card, and had to prioritise buying bread and electric bill and a suit for the job interview, over repaying the mortgage on time.

On that basis I closed a couple of large unused credit cards down, but still kept 3 or 4, with total unused limits (when combined with an overdraft facility of around a month's net salary) of about 45% of my salary. A nice buffer to have, as if something unforseen happens you don't want to have to go and apply for new borrowing and be assessed against strict 2013 lending criteria.

I didn't go overboard and close most of them down, because like I say it is a nice buffer to have - and I figured that if they said they'd only be willing to lend if I closed them down, I would just close them at that point rather than trying to second guess what they might want and close down another couple in advance.

Anyway I got the decision in principle and then the actual offer without any trouble. Lender was Nationwide.

It was a joint application though so I don't know if 45% of salary in spare credit is always OK, or if that ratio being averaged down over the two salaries helped, or the fact we were well within their affordability limits, etc. Presumably it's just one more risk for them to consider along with whether you're on an 85% LTV vs a 75% LTV, or if your overall income is a big number rather than a small number, or you've been in your job 1 year or 10 years, or if the rest of your credit file is generally squeaky clean or not.

kingstreet

Only a negative balance on a credit agreement is used to reduce your maximum borrowing power. The only lender I know which sometimes has a problem with unused credit is Yorkshire/Chelsea/Accord.

macarena123

Thank you both for taking the time to reply. I am new to all this, so am probably overthinking/over-worrying a bit :-)

Thanks again

dimbo61

snoozing is very difficult today due to balance transfer fees of 2.5/3% when you move debt from one credit card to another.
DO NOT spend any money buying a new car/sofa/Big TV on 0% finance before you apply to buy a property and if you have any loans which you can pay off before applying then do so

bigadaj

I don't have any problem with snoozing.