Advice on debt b4 applying for mortgage

samson1313

Hi split with my long term girlfriend a while back and cause i didnt want to get caught up in the trap of all my money going on rent and bills so i'd struggle to save i moved back in with my mum so i could save a mortgage deposit but i've been here long enough now so need to get out asap!

I'm hoping to get a mortgage in march or April when i should have finished saving a decent deposit but before i apply i just wanted a bit of advice

I currently have about £10,000 outstanding on 2 credit cards from living beyond my means for about the last 5 years and using credit cards to prop up my lifestyle tbh but i've got that under control now and not partying anywhere near as much!
I know this isnt ideal at all but they have been balance transfured so are interest free for about the next 15 months, i'm paying fairly large amounts off each month so the card balances should be clear by the end of the year and the cards are locked away where i cant get at them so i cant spend on them and my old cards are chopped up!!

I was thinking about getting a personal loan from Tesco at 5.2% and clearing the two cards, i know i one way this is silly cause at the moment i'm not paying any interest but just wondered what would look best on my credit file 2 outstanding credit cards or one loan or would it make no real difference??
Is outstanding credit outstanding credit whatever it is on loan or card?

kingstreet

Lenders take the monthly cost off your income before multiplying it to work out what you can borrow.

Typically, they will deduct the monthly cost of a loan, or the minimum monthly payment of a credit card, usually 3% of the balance.

samson1313

Ok well a £10000 loan from tesco works out at
Monthly repayments £189.07
Total amount repayable £11,344
APR 5.2%
Term of loan 5 years and 0 months

3% of the 10000 on credit cards is £300 per month so i guess i would be better off with the loan then?

plus i've just made the final payment about a week ago on my business loan which was costing me £244 a month anyway so i'm used to paying that out every month anyway.

other than a small mobile phone bill and car insurance i havnt got any other monthly outgoings now

R_P_W

How much do you earn? How much deposit do you plan to have?

Thrugelmir

Your deposit may well be the critical issue.

samson1313

I earn about £25000 a year only looking to buy a terrace house for about £80000, gonna have between £10000 and £15000 deposit.

Annisele

So in effect you've borrowed your deposit. £10k in debt and £10k in savings means a net position of zero - and I think that'll be a real problem I'm afraid.

macaulays

Annisele wrote: »

So in effect you've borrowed your deposit. £10k in debt and £10k in savings means a net position of zero - and I think that'll be a real problem I'm afraid.

Is this something that lender's would set out in their criteria/eligibility i.e. an applicant cannot have existing debts equal to or greater than a deposit amount or do you mean that this would just be an "unhelpful" aspect of all the data that goes into the credit score mix in general?

Does anyone have any thoughts on OP's query as to whether there is any positive or negative to the way in which that existing debt is held? I assume they realise that it is not ideal but what would be helpful for them is to know whether say, having a given balance in an overdraft, a credit card, a loan etc is any better or worse than another form in a lender's eyes?

Thrugelmir

macaulays wrote: »

Does anyone have any thoughts on OP's query as to whether there is any positive or negative to the way in which that existing debt is held?

A lender would consider the deposit to be borrowed. Whatever form it is in.

Seems the OP is currently in the position of living cheaply at home whilst have the debt on a 0% transfer. So an oppotune time to tackle the debt and repay a chunk of it.

macaulays

Thrugelmir wrote: »

A lender would consider the deposit to be borrowed. Whatever form it is in.

Seems the OP is currently in the position of living cheaply at home whilst have the debt on a 0% transfer. So an oppotune time to tackle the debt and repay a chunk of it.

So does that consideration mean a lender wouldn't lend, may be less likely to lend, may lend conditionally etc?

A previous post noted that it would impact the affordability calculation (i.e. a cost to the applicant of 3% of balance which would then reduce the total amount the lender may consider) which would be perfectly reasonable as with any other expense. Is it the case that if the existing balance (regardless of cost) is equal to or greater than the cash deposit offered that the affordability calculation is overridden and no lending offer would be made?

If so then that would obviously have a serious impact on OP's options at this time however if it is "undesirable" but ultimately the crux of the matter is how much the balance 'costs' and the affordability impact that has then the OP's best route would be to simply reduce the cost of carrying that balance as much as possible and look at applying for funding within the figure that any relevant institution's affordability calculation produces I would imagine?

Thrugelmir

macaulays wrote: »

So does that consideration mean a lender wouldn't lend, may be less likely to lend, may lend conditionally etc?

At 90% LTV , extremely unlikely.

The previous 6 years credit history will also score negatively as well. Particularly if there has been high credit usage.

A lender is viewing an applicants ability to pay a mortgage over 25 years. A long term committment. In the current market there's plenty of demand so lenders can set their risk profile low. In order to weed out applicants.