Mortgage - Existing Dept

backontrack79

Hi guys

Myself and my wife are looking to get our first mortgage in approx 2 years time.

The reason for the 2 years is to pay off our existing depts that we have. Most of this on credit cards and a loan that ends in 18 months time.

My partner now has a better job and we are in the position where we can look to finally clear the dept.

To put you in the picture we had several cards and for the past year or so have been pretty much up to the max.

We have not missed any payments on anything for the last 6 years and checked this on our credit files last month.

I am a little concerned though as I am reading so many posts saying that lenders will not look at you for a mortgage if your previous history shows you using most of your available credit.

Is this really likely to be a massive issue given that we have never missed any payments and will be paying it off before applying for the mortgage??

Any help greatly appreciated.

Crashandburn

Doubt that will cause an issue at all.

As you say, the plan is to pay everything off and by the time you apply, you will have nothing outstanding.

Just keep doing what you have been doing and make sure there are no late payments in the next 18 months.

Good luck

Thrugelmir

The purpose of mortgage lending is not in the main for debt consolidation.

If you've a high level of unsecured debt you may need to consider alternative options. As mainstream lenders won't consider consolidation the solution to your problem.

backontrack79

Thrugelmir wrote: »

The purpose of mortgage lending is not in the main for debt consolidation.

If you've a high level of unsecured debt you may need to consider alternative options. As mainstream lenders won't consider consolidation the solution to your problem.

Hi and thanks for the reply Thrugelmir.

I'm a bit confused though sorry. What do you mean by dept consolidation for mortgages and what other options?

Thanks again.

Dan-Dan

Thrugelmir wrote: »

The purpose of mortgage lending is not in the main for debt consolidation.

If you've a high level of unsecured debt you may need to consider alternative options. As mainstream lenders won't consider consolidation the solution to your problem.

Sometimes , to an outsider , it looks like you respond before properly reading the original post in some threads

no offence

Thrugelmir

Dan-Dan wrote: »

Sometimes , to an outsider , it looks like you respond before properly reading the original post in some threads

no offence

My error. As may have written response to wrong post.

No offence taken.

Thrugelmir

backontrack79 wrote: »

Hi and thanks for the reply Thrugelmir.

I'm a bit confused though sorry. What do you mean by dept consolidation for mortgages and what other options?

Thanks again.

My mistake. Left PC and came back.

With regards to credit cards close cards you no longer have any use of. Once cleared. As this will demonstrate good intention and reduce amount of available credit.

Obviously a good deposit will aid your cause. If you are FTB's look at the various savings schemes available. Such as Nationwides Save to Buy for example. As regular saving is a good way of improving your credit score.

ValHaller

Thrugelmir wrote: »

.... With regards to credit cards close cards you no longer have any use of. Once cleared. As this will demonstrate good intention and reduce amount of available credit.

Obviously a good deposit will aid your cause. If you are FTB's look at the various savings schemes available. Such as Nationwides Save to Buy for example. As regular saving is a good way of improving your credit score.

Credit cards - mostly I agree with the above - but keep the best one with no more than 2 months take home as credit limit. And pay it off each month in full.

Savings - Regular savings are good. But while you have debt don't have huge mountains of savings - just save a token amount in a regular scheme and put everything else to clearing debt. Ultimately it is false economics to have savings paying a pittance while you are paying high interest on credit effectively for the privilege of having savings.

Crashandburn

ValHaller wrote: »

Credit cards - mostly I agree with the above - but keep the best one with no more than 2 months take home as credit limit. And pay it off each month in full.

Is there a hard and fast rule to this?

I always thought having a small amount of debt and making the payment each month shows a better profile than clearing the debt in full each month. Get say £100 on a credit card and pay £10 each month will score higher points than clearing it in full as this shows no outstanding balance each month to show how its managed (depending when the organisation update the credit reference agencies)

Perhaps the Experian rep on here can explain............unless they are too busy in Barcelona sponsoring the Williams F1 team with their money!!

ValHaller

Crashandburn wrote: »

Is there a hard and fast rule to this?

I always thought having a small amount of debt and making the payment each month shows a better profile than clearing the debt in full each month. Get say £100 on a credit card and pay £10 each month will score higher points than clearing it in full as this shows no outstanding balance each month to show how its managed (depending when the organisation update the credit reference agencies)

Perhaps the Experian rep on here can explain............unless they are too busy in Barcelona sponsoring the Williams F1 team with their money!!

There will be a hard and fast rule to Experian's so called 'credit rating'. And it may well be as you state. Because Experian are interested in their commercial relationship with lenders, they may well skew the so-called 'credit score' to make a borrowing habit look attractive.

But in the real world, you are not trying to put yourself in an attractive light to Experian - who are to some extent your enemy as a consumer. You are trying to make yourself look attractive to a mortgage lender who have their own particular take on what makes an attractive borrower. They do use the information on Experian but they generate their own credit score according to their own rules.

The important things are paying things off according to contract and being on the electoral role continuously and not being at too many addresses over a period.Not having a credit card is probably quite safe for a mortgage lender as most of the people who are likely to go delinquent with getting credit for the first time will have already done the cards and disqualified themselves long before they get around to wanting a mortgage.

Crashandburn

ValHaller wrote: »

But in the real world, you are not trying to put yourself in an attractive light to Experian - who are to some extent your enemy as a consumer. You are trying to make yourself look attractive to a mortgage lender who have their own particular take on what makes an attractive borrower. They do use the information on Experian but they generate their own credit score according to their own rules.

Having done some 2,000 mortgages over the years, I fully understand the process.

My question was 'what looks better to lenders'. Heard many an underwriter say "well I can see them paying that each month on time' etc and so does this help?

In overall money management terms, clearing the debts in full each month is the way to go. But just curious as to which will raise your profile higher for lenders and experian.

I've always ran a two pronged attack for my own money. Cleared each month on the cards and a small debt with Next (you can read that as the wifes!) which we don't clear each month.