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mortgage with existing personal loan

I would like to get a mortgage to buy a property.
However, I have an existing personal loan of £20k that is not yet cleared. Ideally, what I'd like to to do is add that loan onto the mortgage.
However, I suspect that my credit score is not good because of the loan. This means that a bank will probably not approve a mortgage regardless of whether I can afford it or not and regardless of the fact that the money would then be secured on the house rather than nothing.

Any ideas what to do? I have never defaulted on payments, never made any late and can easily afford the payments. Ironically, the purchase of a house will allow me to move into a place where the monthly payment is less than the current rent I am paying. Yet I suspect the bank will stop at the credit score?

Comments

  • What is your budget vs depoist value?
  • Thrugelmir
    Thrugelmir Posts: 89,546 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Photogenic
    qwertyjjj wrote: »
    However, I have an existing personal loan of £20k that is not yet cleared. Ideally, what I'd like to to do is add that loan onto the mortgage.

    Debt consolidation is not the purpose of mortgage lending. From a lenders perspective doesn't solve the fundamental issues by giving an easy way out.
  • qwertyjjj
    qwertyjjj Posts: 150 Forumite
    What is your budget vs depoist value?

    Deposit value about 25k between 2 people, looking to borrow about 200k or less.
    I know it's an online calculator so it's probably a case of "computer says no" but if I list my salary then that amount is achievable.
    As soon as I put in a value in the personal loan monthly outgoings it gets denied. Regardless of the amount...I was playing with the figures on the calculator to see whether it made a difference.
    Thrugelmir wrote: »
    Debt consolidation is not the purpose of mortgage lending. From a lenders perspective doesn't solve the fundamental issues by giving an easy way out.

    If I can afford the mortgage then what difference does it make?
    Whether I'm paying rent + a 20k loan back or
    paying a mortgage + a 20k loan back
    money is the same or less
    and with a mortgage it's secured at least.
    ?
  • grifferz
    grifferz Posts: 568 Forumite
    Part of the Furniture 500 Posts Name Dropper Combo Breaker
    qwertyjjj wrote: »
    Deposit value about 25k between 2 people, looking to borrow about 200k or less.
    I know it's an online calculator so it's probably a case of "computer says no" but if I list my salary then that amount is achievable.
    Use deposit to pay off loan (which is almost certainly costing more in interest than your savings are earning), continue using your decent salary to build a deposit?

    Or, wait until next January and use a Help To Buy scheme so you only need 5% deposit? (not suggesting these schemes are a good idea, but 15% of HTB loan == ~£34k on a £225k property has got to be better than £20k of private finance).
  • GenD
    GenD Posts: 23 Forumite
    Eighth Anniversary 10 Posts Combo Breaker
    qwertyjjj wrote: »
    I suspect that my credit score is not good because of the loan...

    This means that a bank will probably not approve a mortgage regardless of whether I can afford it or not...

    I have never defaulted on payments, never made any late ... Yet I suspect the bank will stop at the credit score?


    I don't think it's your 'credit score' that's the problem - having borrowings and paying them off on time actually improves your credit rating, so unless you've had problems in the past, your rating should be good. One issue is simply the total amount of credit you would need, compared with your income, and that is what the bank will use to judge, not whether YOU think you can afford the payments, but whether THEY can afford to take the risk of you falling behind.
    If you still owe £20k, and you want to borrow £200k for a mortgage, you are borrowing in total £220k - if you put that figure into your online calculator, with your income and other outgoings, does it say yes or no?

    The other, and probably more serious, issue is the 'loan to value' ratio of the mortgage. If you want to add the existing loan to a mortgage, it means you effectively cancel out all but £5k of your deposit, because you would be borrowing that much more than the purchase price. For a house valued at £225k, with £25k deposit, a mortgage of £200k would be roughly 88% of the property's value. But if you add in the £20k loan, you would be borrowing a total of £220k, which is over 97% of the value, and no bank is going to lend that, regardless of your income or credit history.

    I hope I've understood your figures correctly, apologies if not.
  • hazyjo
    hazyjo Posts: 15,474 Forumite
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    They'll probably only offer to lend you an amount minus the amount (plus more to allow for interest, risk, etc) that you owe. Even if you're paying off the £20k with proceeds or mortgage, they probably won't give you a mortgage based on that.

    Tried to do it with my ex - he had £10k to pay off and we were going to sell his flat and my house, and buy a house together. His flat sold way before we bought in the end as the chain broke down a couple of times on the house side of things.

    So check what difference it makes on what you're planning to borrow...

    Jx
    2024 wins: *must start comping again!*
  • qwertyjjj
    qwertyjjj Posts: 150 Forumite
    GenD wrote: »
    I don't think it's your 'credit score' that's the problem - having borrowings and paying them off on time actually improves your credit rating, so unless you've had problems in the past, your rating should be good. One issue is simply the total amount of credit you would need, compared with your income, and that is what the bank will use to judge, not whether YOU think you can afford the payments, but whether THEY can afford to take the risk of you falling behind.
    If you still owe £20k, and you want to borrow £200k for a mortgage, you are borrowing in total £220k - if you put that figure into your online calculator, with your income and other outgoings, does it say yes or no?

    The other, and probably more serious, issue is the 'loan to value' ratio of the mortgage. If you want to add the existing loan to a mortgage, it means you effectively cancel out all but £5k of your deposit, because you would be borrowing that much more than the purchase price. For a house valued at £225k, with £25k deposit, a mortgage of £200k would be roughly 88% of the property's value. But if you add in the £20k loan, you would be borrowing a total of £220k, which is over 97% of the value, and no bank is going to lend that, regardless of your income or credit history.

    I hope I've understood your figures correctly, apologies if not.

    Not totally as the credit score is reduced based on number of credit accounts, total personal loans etc. Paying them off on time will increase the score a bit but it's still a low score based on total lent.

    Makes sense. So, it's either get a cheaper house now with 90% LTV or less (inc the 20k) or pay off loan with deposit money and then save up again but that could be another 2 years or so to get the same deposit back?
  • Thrugelmir
    Thrugelmir Posts: 89,546 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Photogenic
    qwertyjjj wrote: »
    If I can afford the mortgage then what difference does it make?
    Whether I'm paying rent + a 20k loan back or
    paying a mortgage + a 20k loan back
    money is the same or less
    and with a mortgage it's secured at least.
    ?

    Not how lenders view the situation. Mortgage lenders are lending at low margins. So therefore wish to filter out applications to minimise the risk. Statistically those that consolidate debt are far more likely to end up financially stretched again in the future.

    If you wish to improve your credit rating. Demonstrate a clear intent to repay the debt by making personal sacrifices.
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