Effect of existing loan / usefulness of OD facility in mortgage application.

rlove

Hi

I am a hopeful First Time Buyer and have a question about the effect of an existing loan on how much I can borrow in a mortgage. I should stress I am aware the key thing is to ensure you can afford the monthly cost of a mortgage + other monthly expenses, + moving expenses for solicitors etc. and not just try to borrow as much as possible.

My situation is I have not saved a deposit, as a 25% deposit on a property in the South East always seemed too unachievable to bother trying for, even though I have a reasonable income (£30k) and several hundred pounds a month of disposable income. With the government's Help to Buy scheme meaning a deposit of only 5% is required, suddenly property purchase seems achievable (how I wish I'd been saving now!).

On a £150k property this means a deposit £7.5k. I can raise this myself and with parental contributions relatively quickly, but do also have a personal loan of with £6k left to pay (for a car purchase) with repayments of £220/mth on a good APR.

I am in credit on my current account, but this has an overdraft facility of £4.5k. I have heard (from a not terribly reliable source) that overdrafts aren't factored on for mortgages but loans are. Would I be better clearing my loan with my overdraft, albeit the interest rates are higher on an overdraft?

Alternatively, if having a loan is not an issue, could I raise the deposit quicker by increasing my loan and spreading the repayments over a longer period, meaning my monthly loan repayments stay as they are now?

So, the awkward facts are:
Salary: £30k
Deposit raised: (£0, but around £2,500 parental contribution)
Current loan: £6k, repaying £220/mth

Interested in £150k property.
Help to Buy contribution = £30k if agreed
Deposit required = £7,500k
Mortgage required = £112,500

I suppose the bottom line is: What impact does having a loan have when applying for a mortgage? How can my overdraft facility best be used when applying for a mortgage (e.g. pay off loan, or use towards deposit)

Any help very much appreciated.

kingstreet

So, you're buying a newbuild?

Forget your overdraft and don't borrow any more money.

The loan you currently have is reducing your borrowing power from £150,000 to £135,165, assuming a 25 year repayment mortgage.

rlove

Great - thanks for your help.