How does an overdraft affect mortgage application?

SirSaverOBE

Hello!

I would be very grateful for some advice. My wife and I are now looking to buy our first house, and will be looking to get an Agreement In Principle in a couple of months time.

FIRST QUESTION: I have worked like billy-o to pay my debts off but still have a bit of a loan (4.5k) that I pay off at £200 each month, which doesn't seem to have too much of an impact on the loan calculators of various bank's websites.

- BUT - - BIG BUT -

I still have an overdraft of £1500. How do lenders treat overdrafts? With credit card balances it seems easy, as they dock the amount they lend according to the balance you owe and monthly payments on that balance. My overdraft is partly interest free and costs me next to nowt. Will they treat this as credit as they do with cards?

ALSO - do they do a full credit check and the check of your statements, payslips, credit etc. when you do an AIP or do they wait until you get the formal offer?

Any advice gratefully received!

Sir Saver OBE

KTF

Do you actually use the overdraft or does the current account currently have a positive balance?

Badger_Lady

Mine didn't pay any attention to my overdraft of £2,500 (which I still use). They demanded that I pay off the full balance of my credit cards, but didn't mention the overdraft at all.

Don't know if that's standard, though!

SirSaverOBE

Hello, KTF & Badger Lady!

Thank you for your VERY swift replies! KTF - yes, unfortunately, I do still use the overdraft. I will be able to pay it off by about February, but we are trying to get as much deposit as possible and do want to move in April / May time if possible, as my wife is pregnant ; )

Badger Lady, that is interesting that your mortgage company didn't pay attention to yours. Who did you use? Were you using the full overdraft at the time?

Many thanks,

SirSaverOBE

Badger_Lady

Hey you, too!

I've been at the bottom of this overdraft for years now... my first mortgage lender was Coventry, and the new one is Halifax - neither of them queried it and, yes, I was fully overdrawn to £2.5k!

AndrewSmith

Originally Posted by SirSaverOBE
Hello!

I would be very grateful for some advice. My wife and I are now looking to buy our first house, and will be looking to get an Agreement In Principle in a couple of months time.

FIRST QUESTION: I have worked like billy-o to pay my debts off but still have a bit of a loan that I pay off each month, which doesn't seem to have too much of an impact on the loan calculators of various bank's websites

With this it also depends on how long the loan has to run, generally if it is less than 12 months the majority of lenders will ignore the monthly payments to it.

- BIG BUT - I still have an overdraft of £1500. How do lenders treat overdrafts? With credit card balances, it's easy, as they dock the amount they lend according to the balance you owe and monthly payments on that balance. My overdraft is partly interest free and costs me next to nowt. Will they treat this as credit as they do with cards?

Some do some don't. With overdrafts there are no hard or fast rules. It will vary from lender to lender. It will also depend on the rest of the case and whether you are asking, for example, for a high income multiple.

ALSO - do they do a full credit check and the check of your statements, payslips, credit etc. when you do an AIP or do they wait until you get the formal offer?

This again will vary from lender to lender. It is possible that a lender, depending on who you select, will conduct a full credit search at AIP however very unlikely that you will be asked for any documentory evidence of income etc until you submit a formal full application. However if you give accurate information at AIP stage then there should be no issue when they do request all the information on full application.

Hope this helps


Andrew

KTF

I think more emphasis is placed on credit cards because thats involves a payment each month (even if its just the minimum) so that comes off the total money you have to repay a mortgage with.

As an overdraft doesnt involve paying out any money each month (unless the bank decided to take it off you), that may be why there is less emphasis on it.

Different lenders may take different approaches though.

SirSaverOBE

Thanks for all the help and advice everybody. This is really good to know. We will be looking to borrow, on a joint mortgage, about 4 times our joint salary. We should have a deposit of about £15k by then with luck.

Let's see what happens!

Many thanks again.

Sir Saver OBE

YorkshireBoy

SirSaverOBE wrote: »

My overdraft is partly interest free and costs me next to nowt.

Surely it would make sense to use some of your savings make the overdraft entirely interest free?

After all, why carry (possibly) 11-18% EAR debt when you're only getting 5% AER (after tax) on your savings?

SirSaverOBE

Yeah, we have discussed this, Lady Saver and myself, and we will probably do that. It's just we have some other expenses coming - having to move house to another rented place until we buy for one thing, and so we may need some of the savings for that.

Good point though, and taken on board ; )

Sir Saver OBE