Help me get mortgage ready!

daisy23169

Hi everyone, I'm looking for a little advice on getting myself into the best possible position to apply for a mortgage in the next few months so any advice would be gratefully received!

I've worked hard to pay off all my outstanding credit card and overdraft debt left over from uni and make my credit reports look all nice and green, but could do with a little advice on how best to finish tidying them up... If background info re my finances will help, when I come to apply I will have a deposit of £50k and I'm on a salary of £19.5k.

I currently have an outstanding loan of approx £7k which was taken out five months ago for a car purchase - this will be paid off in full in the next couple of months and I won't make a mortgage application until the balance is showing as cleared on my credit report. Is this the right thing to do? It will reduce the amount available for a deposit but I feel like it's better to have no other debt and I'll still have a substantial deposit.

Also - I have two open credit cards both with nil balances one with a £2k limit and one with a £3k limit. I'd like to close one and keep one open for emergencies but would I be better off closing both to totally reduce the amount of available credit? Or keep one open and reduce the limit to £500-£1000ish?

I just want to put my credit file in the best possible order to maximise my borrowing potential, so if any of you lovely people have any advice or tips I would be terribly grateful to you

Pont

All looks good to me daisy23169. Your credit rating should show up as looking pretty good. Maybe take out a 30 free trial with a credit rating company (perhaps the one starting with the letter 'E') and have a one time search of yourself. Make sure you cancel it within 30 days and only search once.

Good luck.

moneysavvymummy

Pont - why do you say only check it once? I've subscribed to Equifax & Experian, to try & sort my file out, but am looking to have a regular nosey at it. Does this show to lenders?

Thrugelmir

Keep one credit card. Maintain the credit limit at a level which suits your needs.

jamesd

There are two factors for the mortgage: affordability and loan to value. The loan decreases affordability by the amount of the loan payments. The loan to value being higher would make the mortgage more expensive if it goes over one of the LTV thresholds.

So, which of the two will limit you, affordability of LTV? Given your income, my guess is affordability and that would favour reducing the loan monthly payments. One way to do that is to pay some off, another is to extend the term.

To decide what's best it's really necessary to know the property value and mortgage amount desired. That will make it possible to get some idea of how the affordability and LTV would look and maybe one of the mortgage brokers here might comment on what is best.

Keep the credit cards. two cards with zero balance are irrelevant except to show that you can handle credit, a good thing. Same for having the loan, nice record of responsible credit use. Two cards beats one for convenience in case there's a problem with one of the cards.

Credit report checks when you look don't appear to lenders but they are shown to you. Once only for Experian and Equifax because it costs money and there's no need to keep checking. If you want to look for trouble in an ongoing way the free monthly service from Noddle which uses Call Credit data is good enough. For Experian and Equifax a statutory credit report at a cost of £2 each time done once a year is pretty inexpensive and more than ample in almost all situations.

Pont

moneysavvymummy wrote: »

Pont - why do you say only check it once? I've subscribed to Equifax & Experian, to try & sort my file out, but am looking to have a regular nosey at it. Does this show to lenders?

My understanding is yes. I've read on various sites that too many checks can result in a 'red flag' on your credit file. Potential lenders can see checks have been made but no subsequent finance has been logged. I can only assume this suggests finance was declined.

If this is wrong I'm sure I will stand corrected.

jamesd

It's wrong. Lenders do not see these types of search, among others:

1. Checks of your own credit record by you.
2. Quotation searches, used by some lenders to give an indication of whether you will be accepted before you go on to apply.
3. Money laundering identification checks.

The too many guidance you've seen refers only to application checks, not the ones above.

When an application check is made another lender will not know immediately whether the application has been successful. They won't have a clue about that until they do or don't see a new credit account showing up later. So over a few weeks a lot of checks is relatively high risk because you could be applying for and opening lots of accounts and borrowing a lot of money without them seeing how much. This risk decreases as more time passes since the batch of application searches.

Longer term than that for a few months and beyond it might indicate decline decisions. So it's quite common for there to be some gradual negative effect as the number of searches increase above a couple or so.

Some lenders also have rules about new credit accounts and some of the more fussy ones might decline just because you have a new credit account and there hasn't been more than a few months for them to see how you operate it yet.

Pont

Glad to be corrected jamesd!

daisy23169

Ooh thanks for replying lovely mse people!

Jamesd - you're right that affordability is my concern as I wouldn't be even attempting to borrow more than £100k max for a £150k property which would put me at 66% LTV however I'm guessing my salary level will be what stops me borrowing that amount

To clarify, my deposit will be 50k after paying off the car loan and putting 5k aside for fees etc. Is there any leeway in the income multiples with a higher percentage deposit or does it all come down to income?

Thanks for the help so far!

bluep

In terms of deposit / LTV look around as well - some lenders have different LTV thresholds - i.e. HSBC is 80%, 70% and 60% so the 7k won't make a difference to an application there as you'd still not meet the 60%. However other lenders do 75% and 65% and you may get a much better rate if you can get below the 65% (which I think would be a desposit of £52.5k if I've understood your cirucmstances).

So a happy medium might be paying off enough of the loan to reduce the payments for affordability puposes but still leaving yourself enough deposit to get a good interest fix. Might be worth speaking to a mortgage advisor at a couple of lenders to see what their experience suggests (when I applied through Yorkshire Building Soc, the advisor was very accessible and the person making the underwriting decision on my application (along with the branch manager) so able to give me guidelines on what met their criteria better before I applied - we have a myriad of credit cards, unused credit, a loan, significant deposit / savings, overdrafts when other savings accounts have credit...etc...)

daisy23169

Thank you for the advice - having spoken to my loan company they've advised that paying off a lump sum will only reduce the repayment term, not the monthly payments (apparently that is not an option) so I'm still looking to repay the loan in full.

I've worked through all the figures with my kindly benefactor and it looks like I will have £60k for a deposit after paying off the loan, which looking at a £150k property will give me a LTV of 60% so fingers crossed that will help with the interest rate, and paying off the loan will hopefully help with my affordability prospects.

Off to see a mortgage advisor I go! Thank you for the help, all this stuff boggles my mind so it's very much appreciated.