Help with debts and saving for deposit

Filo25

You have a lot of things to consider, Amy.

Have you actually been paying down the debt for a while now or has the total amount of debt you have remained constant or increased for a while?

Given you have some debt no doubt any lender will want to see evidence that you are generating a significant surplus at present and also after taking into account any changes to your outgoings if you start paying a mortgage rather than renting.

From what you say it sounds like you are confident you can start doing that in future, but lenders will want to see proof of that and to be honest you need to be 100% comfortable with that as well (sometimes I am not the best at budgeting and that expected surplus never quite materialises!), I know renting is a pain, but its not worth putting your future financial security in doubt for.

What are house prices doing in your area at present?

This was one of the factors that pushed me into applying for a mortgage long before I had repaid my debts, living in London I just couldn't take the risk anymore of the market continuing to run away from me, if the market had been pretty steady for a while I would have sat on my hands for a year or 2 while I cleared my debt down.

The good news for you is that you are paying low rates on your personal loans and the monthly repayments are relatively low due to their long term, so they won't have a huge impact on your affordability calculation compared to if you had the same amount sitting on a credit card with a deemed 5% per month cost of that debt.

The downside though is that repaying small amounts of that debt would have no impact on the affordability calculation, you would only make savings there by paying one of the loans in full, and that is obviously a reasonably large amount of money.

I wouldn't say personally that applying for a mortgage with debt is a definite rejection, we got approved for offer (property subsequently fell through) with a significant amount of debt, the only impact was on our affordability calculation, we weren't asked to repay any debt from our deposit, and fingers crossed it appears that we are about to get a mortgage offer again with a different lender.

Obviously each individual case is different, as is each lender but it is not necessarily impossible if it is something which you are 100% sure is financially achievable, you don't want to do this and then find you can't afford to build up cash for contingencies and faster debt repayment.

As a first step you could speak to a mortgage broker to get an idea as to what is feasible and what isn't

Mahsroh

I have to agree with others.... use the £16k to clear your debts! I can understand the reluctance as it's currently cash sitting in the bank. But you're paying more in interest on the loans than you're generating from the cash.

Like Bilbodreams said - you'll have an extra £331 that you can save each month on top of the £800-£1000 and on that basis you'll have you're £26k deposit in 20 months (best case) or 23 months (worst case).

You then just need to be careful to ensure you don't get into the old habits that left you requiring a loan to consolidate debt. I literally log everything I spend.... even if I stick 50p in the vending machine at work - my friends take the mickey but it really does focus the mind! And I find it quite a thrill when I beat my daily, weekly or monthly budget - It almost feels like a sport/challenge for me! You may even find by doing this that the £800 - £1000 you're saving each month is actually £1,100! That's what happened with me when I starting keeping my log.

Amy36

Filo25 wrote: »

You have a lot of things to consider, Amy.

Have you actually been paying down the debt for a while now or has the total amount of debt you have remained constant or increased for a while?

Given you have some debt no doubt any lender will want to see evidence that you are generating a significant surplus at present and also after taking into account any changes to your outgoings if you start paying a mortgage rather than renting.

From what you say it sounds like you are confident you can start doing that in future, but lenders will want to see proof of that and to be honest you need to be 100% comfortable with that as well (sometimes I am not the best at budgeting and that expected surplus never quite materialises!), I know renting is a pain, but its not worth putting your future financial security in doubt for.

What are house prices doing in your area at present?

This was one of the factors that pushed me into applying for a mortgage long before I had repaid my debts, living in London I just couldn't take the risk anymore of the market continuing to run away from me, if the market had been pretty steady for a while I would have sat on my hands for a year or 2 while I cleared my debt down.

The good news for you is that you are paying low rates on your personal loans and the monthly repayments are relatively low due to their long term, so they won't have a huge impact on your affordability calculation compared to if you had the same amount sitting on a credit card with a deemed 5% per month cost of that debt.

The downside though is that repaying small amounts of that debt would have no impact on the affordability calculation, you would only make savings there by paying one of the loans in full, and that is obviously a reasonably large amount of money.

I wouldn't say personally that applying for a mortgage with debt is a definite rejection, we got approved for offer (property subsequently fell through) with a significant amount of debt, the only impact was on our affordability calculation, we weren't asked to repay any debt from our deposit, and fingers crossed it appears that we are about to get a mortgage offer again with a different lender.

Obviously each individual case is different, as is each lender but it is not necessarily impossible if it is something which you are 100% sure is financially achievable, you don't want to do this and then find you can't afford to build up cash for contingencies and faster debt repayment.

As a first step you could speak to a mortgage broker to get an idea as to what is feasible and what isn't

Hi thanks for your advice, my debts in April last year were just over £30000, and now they are at £18000. So we have decreased our debt a lot in the last year. We will never go into more debt now we have sorted out all our payments, we have so much left each month (£800 - £1000) that should something unexpected come up we can pay for it. This amount is after rent, bills, spare money for going out, paying for birthdays/Christmas etc too. Our rent is currently £825 a month with nothing cheaper round here! House prices in this area are high and also the surrounding areas so no option to move as my sons school is here. Houses are selling for full asking price or people offering over asking price!

Its good to hear from someone who is hopefully having a mortgage offer approved with some debt! I would love to just stay in my rented house a few years and pay off all debt fully and then save a massive deposit, but I think me and my partner will have gone crazy by then! I need a house by the end of the year, even if it is only a small one for now! Hopefully later in the year we might find a lender who can make it possible!

Filo25

If it makes you feel any better Amy, I not only have more debt than you have now, I have a little more than you had when yours was at its peak!

To be honest I was expecting the mortgage process to be pretty brutal as a result (and I would have deserved that for the daft way I wasted money over the years!), but it was surprisingly straightforward, didn't really get grilled at all and my first offer was really tight on affordability as well (the second less so).

Relieved to hear I got my second mortgage offer through today as well, both were at good rates, the fact that you both managed to get good rates on your personal loans is cause for optimism that some lenders will look at your credit history favourably.

Good luck with however you proceed from here anyway