Getting a first time mortgage with debt

Fizzyhoney

Hi all,
I'm really hoping you can help us out with some advice on what to do.

We have approximately 20k worth of debt on credit cards, I'm 34 and my husband is 44 and we desperately want to get onto the housing ladder as we are expecting our first baby.

Until yesterday, we had planned to go hard at getting rid of our debt in the year I am on maternity leave and attempt to save a small deposit afterwards.
Our combined income is approximately 50k a year. We pay out around £1000 a month on clearing our debt (mostly on 0% interest) sometimes more when we do overtime etc.
Yesterday, thanks to this brilliant site, we got a PPI rebate of 8k.
Really, we want to know if we should use it to pay off debt first, and then go for a mortgage or if it is at all possible to use it towards a deposit on a flat (around £130,000) instead, and how likely that would be?
Someone told me that we may possibly get the debt added into our mortgage but don't know if that's possible these days?

I know the ideal scenario would be to clear the debt first and take it from there, but we are not getting any younger and our current rental is damp and we'd much rather buy sooner rather than later.
Any advice very gratefully received!

HappyMJ

Fizzyhoney wrote: »

Hi all,
I'm really hoping you can help us out with some advice on what to do.

We have approximately 20k worth of debt on credit cards, I'm 34 and my husband is 44 and we desperately want to get onto the housing ladder as we are expecting our first baby.

Until yesterday, we had planned to go hard at getting rid of our debt in the year I am on maternity leave and attempt to save a small deposit afterwards.
Our combined income is approximately 50k a year. We pay out around £1000 a month on clearing our debt (mostly on 0% interest) sometimes more when we do overtime etc.
Yesterday, thanks to this brilliant site, we got a PPI rebate of 8k.
Really, we want to know if we should use it to pay off debt first, and then go for a mortgage or if it is at all possible to use it towards a deposit on a flat (around £130,000) instead, and how likely that would be?
Someone told me that we may possibly get the debt added into our mortgage but don't know if that's possible these days?

I know the ideal scenario would be to clear the debt first and take it from there, but we are not getting any younger and our current rental is damp and we'd much rather buy sooner rather than later.
Any advice very gratefully received!

My advice....clear the debt and save for a deposit.

Rental damp? Move. There is no need to put up with a poor property when you have a £50k income to find something better. You could on that income afford to spend £1,500 every month on a rental property. I'm sure there must be something within that price range in your local area. I'd move into something small (maybe £500/month) for a few years saving every penny you possibly can...£1,000 per month...and then consider buying in 2 years once your debts have been repaid and you've got yourself some savings.

You will easily get a mortgage for £117,000 with no debts. You could save for another year or two and with a £30,000 deposit borrow some £270,000 and buy a really very nice 3 bedroom detached house...but you've got to live in that small flat for a good few years yet. When baby is about 3 or 4 years the backyard will be invaluable. You don't need one yet whilst baby can't actually use it.

Thrugelmir

Priority needs to be given to the debt you owe.

Hutch100uk

I agree, try to clear the debt. However, I understand the time element. My partner is about to turn 44 and we've been told that if we leave it any longer, we couldn't apply for a 25 year mortgage.

It doesn't look like you are looking to buy an expensive property though, so you could afford to take the mortgage over a shorter period.

I think you may struggle to get a mortgage with that amount of debt.

MortgageMamma

20k debt on a 50k combined income to buy a property of £130k is not impossible, but you'd have to do some careful budgeting.


In an ideal world it would be better to pay off the debt and then save, but babies are expensive little creatures and I personally think once the baby is born you will struggle even more to save and repay debts. Plus moving into another rental will swallow up a couple of grand, and what if you have to move again after say 6 months? (it does happen!)


I personally think you should sit down and scrutinise your current spending, see where you can cut back, project what you'll be spending once you have the bambino and don't forget to factor in working tax credits and child benefits.


Only when you look forward with your expenditure can you be confident you can afford a mortgage now.

Fizzyhoney

Thanks everyone for your advice!
We've decided to use it to reduce our debt. Frankly either way we figure we're still 8k nearer to buying a home, and the debt felt like a bit of an albatross too, so it feels great to reduce that down substantially anyway.

We are sticking to the original plan then, aiming to pay off the debt before my mat leave runs out and then save from there. Yes we may need a shorter term mortgage but I think it's probably the best way to do it.

Thanks again everyone, you're super helpful!

upoiupou

Glad to hear you're not going to try to take on a mortgage in your current situation. I still feel concerned that you need to do some proper research and budgeting around the cost of buying and owning a home. It's not just deposit and mortgage payments but also:

- Fees when buying (solicitor, surveyor, searches, mortgage application/valuation etc)
- Possible overlap of 1-4 weeks paying both rent and mortgage, due to the timing of giving notice to your landlord.
- Moving costs
- Immediate fixes and fixing up. Unfortunately some sellers will have been ignoring that little roof leak, knowing they're heading out of there and a survey during fine summer weather won't necessarily pick up on it. This was exactly my experience. Immediate bill for roof repair: £1,000 approx
- White goods, if you've been using the ones in your rental accommodation and don't own any yet
- Ditto essential furniture

The above can cost several thousand pounds when it adds up.

Then you need to think about childcare costs if you both work full time, or reduced income if you don't.

And you need an emergency fund in case the boiler fails when it's snowing (this happened to me), or other things go wrong, or anything happens to one of your jobs. Otherwise you're going to be racking up more debt very quickly.

It's always a trade-off between wishing you could pay a bigger deposit and wanting to get on the housing ladder as quickly as you can. I hope you manage to save up and buy somewhere soon. But please be realistic about all the costs involved, so you won't get in over your heads and you can enjoy the process!