Joint mortgage - does it matter who owns debt?

Dominic_star

Currently I have a solo mortgage on a low value property with little equity, maybe about £5k maximum after selling costs.

My wife and I want to move to a better area and are looking at houses in the £100k-£120k range in the northeast. We have a deposit of £10k from my wife's parents.

We have a spreadsheet and if we get a £500 per month mortgage on a fixed rate for 2-3 years, we will have £500 spare after a paying everything it costs us to live but this will increase to about £650 in a year and around £800 after 2 years.

We have a joint income of £35k and we have some manageable debt. What we are wondering is if it matters whose name debt is in?

Currently the debt we have is skewed towards my name (car payment and a loan to sort out bathroom so we can sell the house). the credit cards we have are split 50/50 and my wife has a small loan with a year remaining.

I have two questions:

1. I understand the amount we can borrow will reduce according to repayments we have. But does it matter whose name they are in? Because ideally, I would like to 0% balance transfer her card balances on to my account for 3 years which will reduce interest charges significantly.

2. When mortgage companies stress test to determine affordability after a fixed rate, do they take in to account what finances will look like at the time, i.e. that loans will have come to an end and therefore disposable income is higher?

Annisele

I think you should see a broker.

You're right to say that existing debt reduces the amount you can borrow. Sometimes you're better off to use your savings(/gift from wife's parents) to reduce the debt, and sometimes you're not. It depends on your exact circumstances, but a broker will be able to guide you.

I assume you're going to be looking at a joint mortgage (because you want to take into account both salaries and your wife's parents' gift)? In that case I don't think it matters all that much whose name the debt is in.

Lenders tend to take into account the debt you've actually got, not the debt you plan to have in a few years. For all they know your credit card debt will go up rather than down.

I think you might be struggling on affordability. Gifted deposit plus existing debts does spook some lenders, and depending on how close you get to £5k after fees you might not quite make 90% LTV products. Again, this is something a broker can help with.

tvfreek

Answer 1 is No and number 2 is
The payments and amounts outstanding will effect borrowing reglardless of whose name it's in. Joint mortgage obviously.

The idea of the stress test is to assume the same level of debt but with payments at 6%+ and then see if you have enough left over each month.

Thrugelmir

What do you regard as manageable debt? Debt is only manageable as long as you've an income every month.

Will you be moving jobs in the process? As sounds as if you are moving areas.

Dominic_star

Annisele wrote: »

I think you should see a broker.

You're right to say that existing debt reduces the amount you can borrow. Sometimes you're better off to use your savings(/gift from wife's parents) to reduce the debt, and sometimes you're not. It depends on your exact circumstances, but a broker will be able to guide you.

We will be seeing a broker. Using the money to clear debt is not an option, they will only give it for a deposit or costs associated to the actual move.

Annisele wrote: »

I assume you're going to be looking at a joint mortgage (because you want to take into account both salaries and your wife's parents' gift)? In that case I don't think it matters all that much whose name the debt is in.

Lenders tend to take into account the debt you've actually got, not the debt you plan to have in a few years. For all they know your credit card debt will go up rather than down.

Yes it will be a joint mortgage. It is the fixed term loans I included in the figures, hoping a mortgage lender would see the terms end within the fixed term period. I wasn't sure if they would look at the debts on the cards which can clearly be seen to be reducing over a sustained period.

Thrugelmir wrote: »

What do you regard as manageable debt? Debt is only manageable as long as you've an income every month.

Will you be moving jobs in the process? As sounds as if you are moving areas.

I regard manageable debt as debt that is reducing at a good rate, paying above minimum payments and which is not causing any strain whatsoever on our finances or standard of living.

No, we will only be moving 20-30 miles and both have secure long term jobs. Extra travel costs are already accounted for.

Annisele

Lenders will definitely take account of the credit card debts, whether or not they're reducing. Are you prepared to say how much your total debt is, the remaining terms, and the interest rates?

Different lenders have different policies, but they sometimes assume you're required to pay 5% of the outstanding credit card balance each month (even if you're on a 0% deal). That can seriously hammer the amount the lender is prepared to lend.

As an example, if you take Halifax's mortgage calculator and assume joint applicants earning £17,500 each with no debt at all, they might be able to borrow £150k. Now assume debt repayments of £300 a month, and that amount goes down nearly £30k (regardless of how the £300 is split between the borrowers).