Consolidating Debts with loan

Fern0305

Hi,

I have a small personal loan with an outstanding balance of £3000 and approx £4200 on a credit card. I am thinking of taking out an £8000 loan over 4 years to pay of the loan/cards and consolidate into one monthly payment as I find it much easier to pay it off this way. I will be looking to get a mortgage (first time buyer) in the coming months. At the minute I have a very good credit rating. How much damage would an 8K loan on a mortgage application?

I am a member of credit expert and as I see it I don't think it would be a bad move considering I would be settling the other loan early and clearing a credit card with a £6300 limit so my % of total credit being used would be low?

Thanks
Fern

Tixy

Its difficult to know how individual mortgage lenders would view this. There would likely be pros and cons
Pros - some mortgage lenders seem to prefer loans with fixed repayments to revolving credit.
Cons - quite a recent application and you would be increasing your debt by £800. Any reason you want to borrow more than you currently owe? Could you not just borrow £7200 if that is what your currently owe?

Will you easily be able to prove the source of your deposit and prove that none of this loan was used for the deposit money? or that the earlier debts were not the source of the deposit?

How long until you are planning to apply for a mortgage?

Fern0305

I will not be borrowing more than I owe - 8k was just an initial figure I had in mind. The house deposit has been saved up over 2 yrs so I can show my saving account statement to prove this.

I could be applying for a mortgage in 1 week or 6 months - its' hard to say cause I am currently looking for a house so it all depends on when I see something I want.

If I thought leaving my finances in the situation they are in would be better for the mortgage application I would be happy to leave it. It would just mean applying some will power to clear the credit card.

MEM62

I can see how the prospect looks attractive but it is, in fact, very risky. What is likely to happen is that, because of the reduced monthly payments and additional spare cash this frees up, you will again ramp up the balances on your credit cards and your debt will start to spiral and you will run into affordability issues. I would suggest that if you do take the loan you cut up your cards and cut off any other access to easy credit to ensure that you don't go down this road. Also, be aware that the amount you will be able to borrow on a mortgage will be reduced because you have the loan.

Tixy

If it could be as soon as that then I probably wouldn't risk it.

If it was definitely going to be 3months or more the you could be confident that the whole process had been reflected on your credit files and the first payment to your new loan would be showing on file.

I'd go with the will power option. Hopefully not too difficult, do you already have a minimum payment direct debit set up? maybe consider setting up a standing order in addition to that for a couple of days after you get paid?

Fern0305

You are right MEM62...I can see it getting out of control. Best to focus on clearing what I owe.

Thanks

CLAPTON

the mortgage company will take into consideration that you have a debts when they work out the amount of their mortgage offer.

some compnaies have calculators on their website so you can see the impact of your debts on their likely offer.

ValHaller

Tixy wrote: »

Will you easily be able to prove the source of your deposit and prove that none of this loan was used for the deposit money?

That proposition is essentially unproveable. Essentially a mortgage lender will just knock something off the affordability, which will reduce the potential borrowing by more than the amount of the loans.

It depends how the figures pan out. It may be worth while clearing the loan from the saved deposit and rebuilding the deposit from loan repayment money. It may be worth clearing some of the credit card to get utilisation below 50%

Thrugelmir

Why not simply address your debts rather than save for a mortgage deposit?

You levels of debt / available credit will be a factor for any mortgage lender. So will have a bearing when they consider your application. Responsible lending policy is a key issue for financial institutions, as they will not wish to put themselves at risk.