move credit card debt to loan to increase chance of mortgage??

semivia22

Hi, I have recently started looking into buying my first house. When I called for a mortgage in principal, I was not offered the amount I had hoped for, and the agent said this was due to credit card debt. I have a loan with £17,000 left and between my husband and I we have almost £20,000 on 0% credit cards, all payments are made each month to clear the debt rather than just minimum payments. I have recently bought a car using a 0% credit card thinking this was a sensible option rather than car finance or a loan. Now I am wondering whether it makes a difference with the mortgage offered if I consolidate all the debt into one loan? As this is not 0%, I would prefer to leave it where it is.
Thanks in advance!!x

Thrugelmir

Debt is debt. Reducing what you owe needs to be your primary objective.

csgohan4

Maybe some time on the debt free wannabe forums may help. That is a lot of debt you have, it will impact on affordability on your mortgage app big time.
Clear your debts asap

amnblog

All sounds tricky anyway. Where is the deposit coming from?

Be smart and don't rely on advice from the Estate Agent.

minimike2

Thrugelmir wrote: »

Debt is debt. Reducing what you owe needs to be your primary objective.

Not quite right (the first part).


The way the affordability is calculated on revolving credit can vastly make a difference to a lenders affordability calculation.

For example, £20k on credit cards could be seen as a £600 outgoing, however structured onto a loan over 5 years at 3.4% would be an outgoing of £362.47, thus freeing up £237.53 for affordability.

That said, just because this CAN be done, doesn't mean it is a good idea to actually do it as it will make the debt more expensive.

I guess you should question if you really want to be getting into a mortgage whilst having £37k of debt outstanding. Obviously everything is relative compared to your income which we don't know about, so unlike some people on this board I won't be quick to judge and jump to conclusions, but if that unsecured debt is quite a substantial percentage of your gross incomes then it should really take priority before you look at the purchase of a home.

semivia22

Thanks very much Minimike2, your response is very helpful. My wage is a healthy one and so I can afford the payments and have a deposit saved. I am not in spiraling debt, I have always looked into lending and taken the best/no interest rates. I am in the process of clearing debt, however due to recently being on maternity leave (reduced income), this has been a slower process. I have decided I want to get onto the property ladder as soon as possible, as I can afford the mortgage repayments and feel this would be a better way of securing my financial future than renting. As prices are rising too, I just feel now is the time.:)

Mortgage_Moog

I was in the same position, having lots of debt and wanting to move house. Moving the debt around won't help and there's only one thing you can do - pay it off.

It may take a while and I know how annoying it is because I've been there myself. I had to move back home and take 5 years to pay off my debts but as I write this I'm sitting my my lovely new bought home. It's a pain and it's annoying but with debt like that you will find it extremely hard to get a mortgage.

The way I had it explained to me by brokers and banks I went to was that your amount of debt is multiplied by 5 and that amount is knocked off what they'll lend you. 20k on credit cards means 100k less borrowing!

One day you'll be debt free and in a position to by. You sound like you know what you're doing if it's on 0% but it still has an impact on your mortgage.

minimike2

Mortgage_Moog wrote: »

The way I had it explained to me by brokers and banks I went to was that your amount of debt is multiplied by 5 and that amount is knocked off what they'll lend you. 20k on credit cards means 100k les

No, it doesn't.

Whilst you are trying to be helpful, it would be more helpful not to post something if you are not 100% sure of what you are saying.

It is usually the annualised monthly payments which are then deducted from the gross annual income before the income multiplier is applied. So in the instance of £20k credit cards using a standard lenders payment calculation, this would reduce an annual income of £50k to £42,800, so at an IM of 4.5 you could borrow £192,600 instead of £225,000 - So £32,400 less, not £100k.
(Very simplisticly put to demonstrate and obviously lots of other factors involved).

As already stated the OP DOES have options in how to structure this differently to make it appear more attractive to the lender, so it isn't that helpful to come in at this stage to tell them the ONLY way to make it work is repaying it first and as we don't know anything about the remaining income and outgoings we aren't in the position to say as such (even if it is the more sensible thing to do).

AnotherJoe

semivia22 wrote: »

T. My wage is a healthy one and so I can afford the payments and have a deposit saved.

No you don't. You borrowed it on credit cards and a loan and are fooling yourself to think you saved it.

Maximum_Saving

Hello. I think that a mortgage provider looks at credit card debts and loans to see how much the person is paying back on a monthly basis. I advise you to pay off your debts as soon as possible. Good luck.

jonnybeegood

I am no expert but my understanding was that most lenders tend to base payments on 5% of total balance, so if you owe 20K on CC's they would calculate your monthly payment to be £1k. If you have an income of 50K a year, this would be reduce by 12K due to the CC payments and your affordability would be based on an income of 38K. I may be wrong but this what we were told.