Use CC to clear overdraft before mortgage application?

amnblog

However we define it. Trying to add the load of a mortgage on top of slowly shifting CC debt and constant OD use is not smart.


Swopping an interest bearing debt to an interest free position may be helpful but if you have cash to make a purchase that cash would be better used repaying the OD.

twicebittennotshy

Westminster wrote: »

Having only a small surplus is not ideal as mortgage applications have to be stress tested to assume reasonable interest rate rises (the figure of 7% APR rings a bell). So your small surplus needs to be sufficient to comfortably cover repayment at that higher rate.

Have you plugged your numbers into some lender affordability calculators to see what they think you will achieve for a mortgage?

If you have any savings then its, probably better to use those savings to clear all of your CC and overdraft debt and then concentrate on building your savings back up.

The small surplus describes the current state of affairs. If, as I hope to do, I clear my CC debts from my equity when moving house (I am also trying to reduce them as much as possible now), I should then have a less modest surplus in excess of £600 per month.

I have plugged in my salary details and expenditure into various mortgage affordability calculators, assumed no debts (as these would be paid from equity), entered the deposit that I will have after clearing the debts and the mortgage calculators suggest that I should be able to achieve the size of mortgage I need on a 5 year fixed deal. I have also adjusted the interest rate sliders and am happy that a two or three percent increase in rates is manageable. I accept that these calculators don't know my credit history though!

Westminster

Fair enough :-)

Thrugelmir

twicebittennotshy wrote: »

I have also adjusted the interest rate sliders and am happy that a two or three percent increase in rates is manageable. I accept that these calculators don't know my credit history though!

Regulatory guidance issued to the lenders is to use 7% as a basis for affordability.

If you balance transfer to a 0% card then do. As firstly your priority needs to be to reduce your debts in total head on. The mortgage should be secondary. Of course a driven approach to no 1 will by default make no 2 so much easier.

Lenders can now view detail such as credit card accounts that are on promotional rates. Hence why I used the word profiling in my earlier post. With the amount of data now available it's possible to characterise people into distinct groups when it comes to finance. Through the whole spectrum of pessimists to optimists. Optimists being the risk takers who are more likely to reoffend or end in financial trouble at some point in their lives.

twicebittennotshy

Thrugelmir wrote: »

Regulatory guidance issued to the lenders is to use 7% as a basis for affordability.

If you balance transfer to a 0% card then do. As firstly your priority needs to be to reduce your debts in total head on. The mortgage should be secondary. Of course a driven approach to no 1 will by default make no 2 so much easier.

Lenders can now view detail such as credit card accounts that are on promotional rates. Hence why I used the word profiling in my earlier post. With the amount of data now available it's possible to characterise people into distinct groups when it comes to finance. Through the whole spectrum of pessimists to optimists. Optimists being the risk takers who are more likely to reoffend or end in financial trouble at some point in their lives.

Thank you Thrugelmir - good advice as always.

It is easy to say that the mortgage should be secondary, but mychildren can't continue to share a small bedroom for too much longer- that's what is driving the need to move and obtain a mortgage.

I've been using 5% as a cautious starting point when trying to price mortgages, and 3% on top of that is still affordable.

droiderm

Edited just seen your other thread