Reducing spending before applying for a mortgage

kp0510

Hello,


My husband and I are currently living with family to save a deposit for our first home. We are aiming for a 10% deposit (approx. £23k), which hopefully we will have saved by the end of this year.


We don't spend particularly excessively, but I am aware that around 3 months before applying, we will need to be careful with our expenditure (so from around October, with a view to visiting a broker in January 2017 to start the process). Does anyone know how 'picky' they are with your transactions when applying for a mortgage? I know I am going to be worried about spending any money at all during that period! Will they look down on things like buying one takeaway a month, or buying something from Amazon, etc? We have also been putting £40 a month aside for Christmas presents this year so hopefully the Christmas period shouldn't have too much of an impact on our bank statements.


I also have a student loan (husband does not), which I pay approx. £80 a month for (fluctuates as I often claim mileage in my job). We also both pay into a company pension each month. Do either of these have a significant impact on affordability? I have read elsewhere about people suspending their pension payments for a few months before applying for a mortgage - is this advisable?


Maybe I am worrying too much, but any advice on this would be much appreciated thank you!

JimmyTheWig

kp0510 wrote: »

Does anyone know how 'picky' they are with your transactions when applying for a mortgage? I know I am going to be worried about spending any money at all during that period! Will they look down on things like buying one takeaway a month, or buying something from Amazon, etc?

It's all about affordability.
If I was assessing you (in reality I have no experience of this) then I'd want to see that you could afford the repayments. If you're currently living with parents then what I'd ideally like to see is the equivalent of the mortgage money going into savings each month. Nothing wrong with a takeaway every week if you can still afford the mortgage. Putting the future mortgage repayments into savings and spending the rest on Pokemon and cheese would be fine with me. But if you are currently paying peanuts bed and board at home (again, I don't know if this is the case with you) and are spending all your available money on Amazon and takeaways then I'd be worried about how you'll adjust to paying a mortgage along with the other costs of running a home.

I also have a student loan (husband does not), which I pay approx. £80 a month for (fluctuates as I often claim mileage in my job). We also both pay into a company pension each month. Do either of these have a significant impact on affordability? I have read elsewhere about people suspending their pension payments for a few months before applying for a mortgage - is this advisable?

Student loans will have an impact on affordability. I.e. anything you spend on student loan repayments each month will be money you can't spend elsewhere (e.g. on mortgage repayments). But there's nothing that you can do about that.
Likewise pension payments will have an impact. You can stop paying into it, but if you need to do that to demonstrate that you can afford a mortgage then I'd be concerned whether you can actually afford the mortgage.

kp0510

Thank you for your reply!


We save an absolute minimum of £1,200 a month, but it's usually between £1,400 and £1,500 depending on any extra mileage I get, or any money left over at the end of the month. We are paying £90 a month rent, plus paying £80 a month for the Sky package as part of our rent (£170 a month total, this was agreed with family when we moved in). We also buy our own food.


Thanks for the advice about the pension payments! I feel we can afford them, and I don't particularly want to suspend them for a few months, I was just wondering if many people do that to boost their chances of being accepted.

csgohan4

80 a month for SKY ouch. If your renewing this month, MSE have an offer at present.


Either way Lenders generally base your spending on ONS stats. However if you have ongoing commitment that is large like a season ticket or regular at your local Poker club

JimmyTheWig

kp0510 wrote: »

We save an absolute minimum of £1,200 a month, but it's usually between £1,400 and £1,500 depending on any extra mileage I get, or any money left over at the end of the month. We are paying £90 a month rent, plus paying £80 a month for the Sky package as part of our rent (£170 a month total, this was agreed with family when we moved in). We also buy our own food.

I believe that they "stress test" mortgages on what would happen if interest rates went up to 6%. (Others may be able to clarify this.)
At 6% interest, a £207k mortgage would cost £1334 a month.

If your bank statements show £170 a month going out for rent plus regular supermarket bills for food then I'd say as long as you can show £1164 going into savings each month you'll be fine. Sounds like you can do this.


[As a seperate issue, if you are wasting money now on Amazon and takeaways (only you can decide if it's a waste or not) then not spending that money and putting it to one side for once you've moved either as a pot to buy stuff for the new house from or as an emergency fund for when things in the house go wrong is probably a good idea.]

kingstreet

Lenders are not greatly interested in discretionary expenditure.

It was a media fallacy from the introduction of MMR in April 2014 that you had to eat nothing but beans on toast for the three months run-up to a mortgage application.

Lenders are interested in;-

dependents/childcare/maintenance
credit card balances/loan/student loan/HP payments
ground rent & service charges
season ticket loans

and will use ONS averages for the household in establishing affordability.

Thrugelmir

kp0510 wrote: »

We don't spend particularly excessively, but I am aware that around 3 months before applying, we will need to be careful with our expenditure (so from around October, with a view to visiting a broker in January 2017 to start the process).

Precisely the reason why lenders won't place any reliance on what you present them with. Far too easy to paint a misleading picture. 3 months in isolation wouldn't be indicative of a full year either nor would it make allowance for non recurring expenditure.

kp0510

I agree the Sky package is *ouch*, hopefully this is something we can get rid of/reduce in the near future, I will discuss it with my husband.


I did wonder with the new affordability checks how much the media have been exaggerating it, for example, only eating beans on toast in the months before applying!


We will also start building up an emergency fund/money towards new cars (we both work an hour's drive away from home so the mileage on our cars builds up quite quickly, don't really want to take out a loan for new ones when we have bought a house if we can avoid it!).


In terms of debt - my husband has about £300 on a credit card that he is paying £50 a month towards (but not putting anything else on it), and I spend about £50 a month on mine, then pay it off every month.


Thank you everyone for taking the time to respond, I really appreciate your help.

JimmyTheWig

kp0510 wrote: »

In terms of debt - my husband has about £300 on a credit card that he is paying £50 a month towards (but not putting anything else on it), and I spend about £50 a month on mine, then pay it off every month.

Yours isn't really debt, then, so that's fine.
Sounds like his will be clear by the time you apply, so that's fine too.

If you can trust yourselves, you're probably better (unless it's on 0%) to use money from savings to pay his card off then use the £50 a month that he is currently paying to top savings up again. The money he's paying on interest would probably way outweigh the money you'd lose in savings interest.

kp0510

Yes his card is 0% so he will definitely have paid it off before the interest starts kicking in. Then I assume he will do the same as me - put a small amount on it each month then pay it off every month. And we definitely won't be applying for any more credit cards either!

Goldiegirl

kp0510 wrote: »

Hello,


My husband and I are currently living with family to save a deposit for our first home. We are aiming for a 10% deposit (approx. £23k), which hopefully we will have saved by the end of this year.


We don't spend particularly excessively, but I am aware that around 3 months before applying, we will need to be careful with our expenditure (so from around October, with a view to visiting a broker in January 2017 to start the process). Does anyone know how 'picky' they are with your transactions when applying for a mortgage? I know I am going to be worried about spending any money at all during that period! Will they look down on things like buying one takeaway a month, or buying something from Amazon, etc? We have also been putting £40 a month aside for Christmas presents this year so hopefully the Christmas period shouldn't have too much of an impact on our bank statements.


I also have a student loan (husband does not), which I pay approx. £80 a month for (fluctuates as I often claim mileage in my job). We also both pay into a company pension each month. Do either of these have a significant impact on affordability? I have read elsewhere about people suspending their pension payments for a few months before applying for a mortgage - is this advisable?


Maybe I am worrying too much, but any advice on this would be much appreciated thank you!

They won't be bothered about things like takeaways and Amazon.


They are interested in things like the bank statements confirming what you say you earn (although they'll also want to see payslips), making sure you don't have an unauthorised overdraft, making sure your utility bills are paid and checking to see if the statements reveal any previously undeclared credit commitments.


When I used to check bank statements, I was always interested in what people spent their money on, purely for an insight inbto their lives.... but that was my own curiousity, not part of the job!