debt and mortgage applications

golden_slumber

Hello,

My partner and I would like to buy a house. We have a good combined income and a deposit. We do however have a bit of unsecured debt in the form of a loan, overdfraft and credit card. Would it be better to consolidate this debt to one place before we apply for a mortgage (i.e. extend the loan to pay off the overdraft and credit card?) Or does it not matter what ‘form’ the debt is?

Many thanks.

ACG

The monthly repayments will have some sort of affect but without knowing the specifics of your debts (amounts, terms, monthly repayments) and your incomes its difficult to give an answer.

golden_slumber

Thank you. We have a joint income of approx 54k, and around 8k in debt (4k in a loan due to be paid off in about 16 months, £2k in overdrafts on joint and my current account, and £2k on 2 credit cards). I am thinking we can extend the loan to pay off the overdrafts and credit cards. This will reduce our monthly repayments and make it more manageable in terms of only one thing to pay a month, and also reduce our available credit which I gather is a good thing?

Thrugelmir

Why not use your deposit to straigten your finances out.

MrsHappy85

My husband I have just bought our first house.

We were in a similar financial position to yourself, combined income of around 50k, me an £1100 overdraft, £3000 credit card debt, £145 a month car repayments.

We put down a 10% deposit and borrowed £162,000.

As long as you havent missed payments/exceeded limits etc, I imagine you will be fine.

Obviously, buying a house with outstanding debt isnt ideal but it felt like the righ time for us to buy. Plus, our mortgage isnt much more than the rent on our previous home.

Goodluck.

golden_slumber

We have been gifted some money specifically for a deposit, so are unable to use this to pay off our debts. Of course we have the option to save this money until we are debt free, but feel the time is right to get on the housing market and so are exploring our options. Thanks MrsHappy, that does sound like you were in a similar position to us so that is reassuring.

The main drivers for us to consolidate our debt would be manageability (one repayment as opposed to many), and to lower our monthly repayments. It would also allow me to close my current account that I currently have open alongside a joint account just because of the overdraft. Presumably having a lower monthly repayment on unsecured debts would be a plus in terms of mortgage applications? What about potential negatives? The longer loan term? Would the application to extend a loan potentially within a few months of a mortgage application be detrimental in terms of credit scores?

Thrugelmir

A combination of gifted deposit and debt is not a good mix. Particularly if the overdraft usage is regular. As from a lenders perspective indicates that personal money management is not your strong point. Rather than consolidate the debt. You need to identify the root cause and rectify it. A lender will be able to access your previous 6 years credit history and see the trends.

golden_slumber

Thank you, like I say we are just exploring our options at this stage, definitely not jumping into a mortgage we can't afford. We have good insight into how we got into the debt, and have been steadily reducing it.

Specifically what I am asking for guidance for is if it is a good idea to consolidate our debts, given that we may be considering mortgage applications in the not too distant future. Our monthly repayments across all our debts would reduce, and we would have less 'available' credit (could cancel our credit cards which currently have balances far below the total available, and close the current account with the overdraft), but we would be generating a credit search with the loan application and the repayments would be over a longer term than they are now.

R_P_W

Consolidation rarely works. I can understand you wanting to reduce interest, but you say reduce outgoings. You should increase the payments and get that debt gone as quickly as you can.

Personally I wouldn't feel comfortable taking on a mortgage when having 8k of debt. I assume that as the deposit was gifted you don't have any other savings? What would you do if your boiler packed up and needed replacing? Or the roof needed fixing? Or one of you lost your job? With existing debts and no savings you have very little option but to borrow even more.