Debts relative to income and mortgage application

dwoodroffe

Hi all, we have just put in an offer on a property after a while out of the market (since 2010) and pre-crisis checks on affordability etc.

We are in the fortunate situation of a very good combined salary but the area we are renting in and have settled in (N London) is very expensive. I had assumed that we would be fine but would wonder what the effect of credit debt and the new checks will have:

Our situation:
Combined salary:133,000 + unguaranteed bonus of 42,000
Property value: 500,000
Deposit: 50,000 (90% LTV)
Credit card debts:17,000 - all on long term 0%, about 30% of credit limits.
HP (car) - 290 per month
2 children
No missed payments or other credit issues

We have an AIP from the post office a day ago for a 90% LTV so have passed the credit check but wondering when a underwriter gets to it they will query the credit card debt, from my perspective its on long term 0% so can pay off in the next 2 years.

Thrugelmir

Debt and savings do not sit in separate pots. Your deposit is in reality only £33k.

audigex

I don't subscribe to that: no mortgage lender demands you pay off all debt before using the remainder as the deposit.

It's a good personal mantra, but it's not policy. As long as the lender thinks it's manageable, they may lend to the OP anyway.

Divide everything by 5 for a moment: £100k mortgage, £10k deposit, £27k combined income, £60/month for a car, £3.5k debt. That certainly seems manageable for a first time buyer? I recently looked applying for almost that exact situation, in fact, and there didn't seem to be any problems at all witht he debt:deposit:value:income ratios

And a couple with £133k/yr is arguably more able to pay off £17k debt than a couple on £27k/yr with £3.5k debt, as bills tend to plateau.

Thrugelmir

audigex wrote: »

I don't subscribe to that: no mortgage lender demands you pay off all debt before using the remainder as the deposit.

I said nothing about repaying. From a lenders point of view it's borrowed money. Common sense really as using your logic everybody would borrow to fund deposits. Rather than make and demonstrate an effort to save. Debt is debt. All has to be repaid.

dwoodroffe

Thrugelmir wrote: »

I said nothing about repaying. From a lenders point of view it's borrowed money. Common sense really as using your logic everybody would borrow to fund deposits. Rather than make and demonstrate an effort to save. Debt is debt. All has to be repaid.

I can see your point and to be honest I am doing that. Retaining the 0% debt on credit card for the next year is better than the difference in repayments between a 10% deposit and 5% (using the deposit to pay down credit cards).

I doubt I would ever get to explain this logic to an underwriter and there is risk of course in something happening to stop the credit card repayments. Just interested in gut feel if it would get waived through.