Personal Loan with Mortgage Application

nick3young

Hi All,

My partner and I have found ourselves in a position to buy a house. We have a deposit, a sensible income and are currently renting. However, I currently have around £7k spread across three credit cards which I've had lingering for a few years - I haven't added to them recently but I've not made an effort to clear them.

I know that in an ideal world I would be rid of this debt before making a mortgage application but we are keen to move quickly. I have spoken to a couple of experts in the field and they don't believe the debt will be that big an issue with the application. In fact, 'The Post Office' recently told us (a) how much we would be able to borrow without the debt AND (b) taking the debt into account - there wasn't a lot of difference.

However, I got a little hasty last week and applied for a Sainsbury's loan to consolidate the debt. I thought that it would sound better applying for a mortgage with a single loan as opposed to three credit cards. Someone has now told me though NOT to take the loan because banks may interpret it as me getting a loan for the deposit. I have 28 days to return the paperwork to Sainsbury's.

What should I do? I'm keen to consolidate this credit cards - I will be doing one way or another anyway. Now that I have the 'credit check footprint' on my file, had I might as well just go ahead with the loan? My overall debt will obviously not be affected and I'm sure I could prove to the bank how I have used the loan.....

Thanks
Nick

thebritishbloke

Why don't you just put your mortgage on hold, and use part of your deposit to pay off your credit card debts?

Thrugelmir

If your debt represents a large amount of the deposit. Then you may well have issues. As a lender may consider the deposit borrowed. Sensible option would be to repay the debt. Then use the money saved to replenish the deposit.

nick3young

Thank you to both of you for taking the time to reply.

There are a number of reasons why I can't use the deposit to clear the debt....

• Firstly, as mentioned in my initial post, myself and my partner are quite keen to move soon.
• I know we can't predict the future, but I'm a little concerned that... let's say for example house prices rise 5% next year, this would be at a faster rate than I can save (I know this point will be frowned upon!!).
• Finally and most importantly - I don't want to go into detail but the money is for a house deposit. Not to clear my debt.

I'm not really after advice on what the 'sensible option' is - again, as mentioned in my initial post, I know this would be 'to be debt free before the application'. This isn't going to happen.

The good news is that we are in a position to comfortably manage the payments to clear my debt over the next 3 yrs whilst being able to afford mortgage repayments. I know that none of us like to pay interest but personally, I don't mind paying a total of £500 interest on a 4% loan over the course of a 3 year loan. £170 a year is a small price to pay to not delay our house move.... this is my firm belief even if others disagree with me.

Finally, as mentioned, The Post Office and an independent mortgage broker do not believe that my outstanding debt will be an issue with securing a mortgage. This is worth bearing in mind as a point.

So to reemphasise my original question - should I consolidate my debt before applying for the mortgage or leave it be?

Thanks again.

SuperHan

The Post Office and your mortgage broker are going to know far more than what some strangers with half the picture on the internet can tell you. Ask the broker what's best and follow their advice.