Personal debt level

Dribiddi

Hi all looking for some advice for a soon to be (probably a while off yet) 1st time buyer.

So my partner and I have been saving hard for mortgage deposit since April last year, at the moment we have approx £8000 saved which I’m pleased with but long way to go. (About half of this is tied up in a share scheme, the other half in HTB ISAs).

The downside is we carry too much personal debt. I have
1.£9000 left on a car loan (I know wish I’d got a banger), 3.5% interest. I pay the monthly payment of £202 per month + an extra £50
2. approx £8000 on an interest free credit card (from the days of buy now pay later). I pay approx £150 per month towards this per month
3. My partner has about £5000 owed on an interest free credit card, pays about £150 per month towards this.
So at the moment I’m not thinking too much about mortgage, I want to significantly reduce those debt levels.

My hope is in 18 months to be near where we want to be. By then the ISAs will have about £10k in them, the share scheme will have about £12k. (We have a wedding to pay for in 2020 so has got to cover this but the wedding venue is £5k which will be paid by 2020 it’s just the extras and honeymoon it has to cover so hopefully will be some left over for debt/new home costs/deposit top up.)
By those figures I estimate my personal debt will stand at somewhere near £10,000 my partners £3000.
From your experiences do you think these levels are too high? Our combined salaries are in the region of £55,000 so I think we’re doing as much as we can. I know in a way it would make sense to just pay off debt and nothing else but psychologically I feel I need to be taking steps towards mortgage deposit else we’ll just do what we did for years and live for the day in money terms, being able to see, at least in some ways we are going in the right direction is great motivation for sticking with it

Any advice appreciated


Edit - would help to give an idea about house price. I think we’ll be looking for something in the region £150-200k. I’d love to have a 10% deposit which at the lower end of that range I think could be just about doable in 18-24 months

Thanks

henrik1971

Having moved and remortgaged just over four years ago, shortly before the lending rules tightened, we were seeking a mortgage for £145k and were putting down £25k deposit. Our combined incomes at that time were circa £50k.

We had £17k in total of unsecured debt - almost entirely on 0% cards.
With the help of an IFA we were able to secure the mortgage, but only by the skin of our teeth and after lots of headscratching by the underwriters at Santander..! Affordability was totally shot by the unsecured debts. Also, the rate we were able to get was not as low as it might have been, which has cost us dearly during the fixed rate period that followed - several thousand pounds more than if we had got the lower rate
Our adviser said if we hadn't had the card debts we could have borrowed close to £250k without too many problems - and at a better rate.

In other words, every £1k we owed reduced the amount we could borrow on a mortgage by circa £6k.

Suffice to say, I would put the savings on hold if I were you and do everything you can to reduce the debt as much as possible. Lending rules are even tighter now and so appearing overcommitted could potentially be fatal to your mortgage hopes..

csgohan4

that's a lot of debt, go to the debt free wannabee forum and hit that debt. With a mortgage your debt is only going to get worse.

fatbelly

The car loan is probably not a loan (check). If it's a hire purchase agreement you have the option to voluntarily terminate and limit your liability to 50%

Dribiddi

No it is a Nationwide personal loan. Car was fully paid for with this loan

Firsttimebuyers

We have almost the same income as you, but slightly higher debt levels - in a similar manner, car loan each, some stuff on 0% credit cards - but we only had a 5% deposit.


It did limit what we could borrow, a quick go on a mortgage calculator for a bank will show you that - without debts we'd have been able to borrow over £200k, with debts it dropped down to circa £150k - but we only wanted to buy a house with a purchase price of £135k as our first home so were still ok.

enjoyyourshoes

What is a priority ?

1.0 Fancy wedding

2.0 House

3.0 Debt free

Don't say all 3 !

Work that out and things will drop into place.

If it debt free, then savings will pay for the most costly debt witch has no EPC, and you will have enough to pay off the 0% by their term before exorbitant interest rates hit. You will also get married abroad, just the two of you on a planned and saved for holiday.

If its the fancy wedding, then the house will be put on the back burner.
If it hose, wedding done frugally and you balance debtbrepayment with mortgage/deposit maximisation (use on line calculators with the different parameters available to you )

enthusiasticsaver

Any unsecured debt will limit what you can borrow for a mortgage. Some lenders have insisted on debt being cleared first. £13000 on credit cards between you will take 3 and a half years to clear assuming you manage to carry on getting 0% deals. The loan looks like that has about 3 years to run too. Personally I would be aiming to clear it in 2 years time when you are ready to buy or delay buying for 3 years when the debt should be gone and hopefully you have a higher deposit.

Thrugelmir

Dribiddi wrote: »

2. approx £8000 on an interest free credit card (from the days of buy now pay later). I pay approx £150 per month towards this per month
3. My partner has about £5000 owed on an interest free credit card, pays about £150 per month towards this.

Sounds like there's no serious attempt to repay your debts. What's plan B. If you are unable to roll the balances over at the end of the promotional period. 0% balance transfers are very in the regulators sights at the moment, with lenders already beginning to change their polices.

Dribiddi

Thrugelmir wrote: »

Sounds like there's no serious attempt to repay your debts. What's plan B. If you are unable to roll the balances over at the end of the promotional period. 0% balance transfers are very in the regulators sights at the moment, with lenders already beginning to change their polices.

Food for thought.
If this happened the money being saved in the share scheme would be used. Although give me a break, no serious attempt? We pay £600 min per month more when we can afford. As well as saving £900 per month I think this is OK

Money_Muppet

Dribiddi wrote: »

No it is a Nationwide personal loan. Car was fully paid for with this loan

Then sell the car, get a banger and pay down your debts.