First time buyer advice

walker250

Hi,

The facts:
I recently inherited £47,000. I would like to buy my first home soon, and have an income of £47,000 before tax. I would like to buy for no more than £230,000. I have £20,000 in credit card debt (all at 0%). I have a good credit score.

I would be grateful for some advice:
Should I pay off all the debt and use the remainder for a deposit, or keep tarting the debt around, gradually paying it off while having a larger deposit?
Which would make me a better mortgage prospect please?

Thanks

lee111s

Pay off your debt. That amount will have a huge affect on the amount you can borrow! You'll still have enough for a 10% deposit but you'll have to work out how much mortgage payments would be on a £200k mortgage to see if a one of that size would be affordable.

Annisele

That's a huge debt by comparison with your salary. From a lender's perspective, the fact that the rate on it is 0% now doesn't mean you won't be paying 15% on it next year - and so it'll have a pretty big impact on the amount you can borrow.

Did you run up the debt so you could stooge/invest the money at a higher rate (and so you've still got the money to repay the debt whenever), or did you run it over time by spending more than you earned? If the latter, that may also spook some lenders.

You could play around with something like Halifax's mortgage calculator for some guesstimates (but bear in mind other lenders may have very different criteria).

Sparx

Pay off ALL of your debt first.

You will be in a MUCH better position in terms of mortgage affordability and your financial life in general moving forward.

ACG

I wouldnt necessarily say pay off ALL of the debt first.

It may work out financially better to be putting down a 15% deposit (rather than a 10%). Do the sums or get a broker to, it might be better to pay off the full debt first but it may not be.

It is a high amount of debt and some lenders may have concerns that you ran up credit card debts that high in the first place 0% or not.

walker250

Thanks for your advice.

My wife and I jointly ran some of the debt up when we set up home together for the first time, and then the rest came when our son was born and my wife took a massive pay cut, it has taken us about 5 (stressful) years. She isn't earning at the moment.

I think I will pay off all the debts first.

How long should I wait before getting a mortgage DIP, as I assume it may take the credit reference agencies a while to update my credit report?

SantaKlaus

walker250 wrote: »

Thanks for your advice.

My wife and I jointly ran some of the debt up when we set up home together for the first time, and then the rest came when our son was born and my wife took a massive pay cut, it has taken us about 5 (stressful) years. She isn't earning at the moment.

I think I will pay off all the debts first.

How long should I wait before getting a mortgage DIP, as I assume it may take the credit reference agencies a while to update my credit report?

you'll need to wait atleast 1 month for reference agencies to update your credit report, double check your report yourself 1 month after you've paid off your debts then you can go for the DIP if it has been updated

dimbo61

So clear £20K debt, 10% deposit on £230K property is £23K and £2,300 stamp duty plus legals ,searches etc to use up the £1700 left!
Can you afford a £203,000 mortgage ? Have a look at some of the online mortgage calculators that the lenders have to find out 90% LTV deals.
Are you renting now ? How much !
How much will £203K cost at 5% ?
4.5X income

Thrugelmir

You've a once in lifetime opportunity to put your finances on a sound footing. Use the money wisely. Pay off your debts. Put some aside as an emergency fund. Then go from there. You got into high level of debt as you over extended yourselves. Don't make the same mistakes again.

walker250

Dimbo61, rent is currently just over £1000 a month!

Thanks all, I'm grateful for your advice.