Using equity from sale to pay off loans

spriggsy

Hi guys,

We are looking at moving house at some point in the future.

We've got a couple of personal loans which at the moment limits the amount we can borrow.

I've done a few of the 'how much can i borrow calculators' and noticed that it makes a massive difference depending on whether you have personal debt or not. (i.e. paying off a 10k loan would mean the bank could lend 40k more on a mortgage)

The idea is that we would use some of the equity from the sale of our current house to pay off those loans and therefore allow us the opportunity to borrow more on the mortgage.

My question is, can we apply for a mortgage on the basis that those loans will be paid off with some of the equity, or will the banks only go on your current situation?

I should also point out that with the amount of equity left over, there would be enough to cover deposit and various fees for the sale and new purchase.

Thanks in advance.

kingstreet

spriggsy wrote: »

My question is, can we apply for a mortgage on the basis that those loans will be paid off with some of the equity, or will the banks only go on your current situation?

Yes. Although one or two lenders won't ignore anything which is still visible on your credit file, so be careful with lender selection.

Thrugelmir

spriggsy wrote: »

The idea is that we would use some of the equity from the sale of our current house to pay off those loans and therefore allow us the opportunity to borrow more on the mortgage.

That's a form of debt consolidation. Lenders internal policies will determine whether this is acceptable or not.

spriggsy

Thrugelmir wrote: »

That's a form of debt consolidation. Lenders internal policies will determine whether this is acceptable or not.

Is it though, because we are using equity 'earned' on the sale of the house to clear debt, not borrowing more to clear the debt? (If you get what I mean)

Or is it the intention to clear debt to be able to borrow more seen as a kind of debt consolidation?