Should I clear my debts in full, or leave some on?

Scout__2

I'm in a position to clear all of my debt completely in full, but I have read mixed messages about this and whether it is the smart/correct thing to do, which has left me confused, somewhat.

I want to build a solid credit rating as the intention is to apply for a sizeable mortgage at the end of this year.

I have two 0% interest cards with Virgin and Barclay's respectively, and debt within my current account with Lloyds.

Limits and extent of the debt per card is as follows:

- Lloyds £3,015 of debt with a £4750 limit. This one charges interest, and I'll be clearing it absolute, regardless.

- Virgin: £2970 debt with a £3200 limit. 0% interest until May 2019

- Barclay's: £8759 debt with a £10,000 limit. 0% interest until May 2019. I applied for an increase in limit on this card at the start of January of £5,000. This was done to cover a funeral.

As a borrower, I've been a dream customer to all my lenders as I've never missed a payment, defaulted or given them any cause for concern - all three of them bombard me with offers for more credit even when I'm at a supposed limit, so I'm obviously desirable to them.

My intention is to buy my mother's home outright for her (clearing the remainder of the mortgage in one go) and then focus on myself and the joint mortgage my partner and I will be looking to take on by December or so.

As I say, I'm in a position now to eradicate all of this debt absolute, but is that the optimal thing to do given the outlined plans above?

[Deleted User]

It depends on which mortgage lender you go with. Some will include the full amount in your affordability, some only a proportion.

See a broker to find the optimal approach.

System

Clear the debts off. High credit card utilisation is a reason for declining.

My intention is to buy my mother's home outright for her (clearing the remainder of the mortgage in one go) and then focus on myself and the joint mortgage my partner and I will be looking to take on by December or so.

You may be shooting yourself in the foot if you are a first time buyer because you'll lose the first time buyers stamp duty entitlement if you buy your mother's home for her and then go buy your own as you will be deemed not to be a first time buyer with your own.

AnotherJoe

Yes, you are probably better off giving her a loan which doesn't require repayment until the house is sold. make it "legal" with a proper signed agreement.

Otherwise, on the grounds that No Good Deed Goes Unpunished, possible worst case scenarios include;
When you buy a house for yourself you lose out on various FTB benefits and you have to pay extra SDLT
Or if by "buy it for her" you mean pay her mortgage off so she owns it, then if she goes into care, the house is in her name so it gets sold to pay for care home fees so you might as well have just given your money direct to the local authority.

Scout__2

Thank you all for replying. I've been reading up on FTB since I made the OP and realise it is jeopardised if I put my name down on the deed for the house instead of giving my mother the money to do so (clear the mortgage) herself, which leaves me in a bit of a quandary.

The big issue I have is my plan was to look for the mortgage for myself and partner at the end of this year, which obviously leaves an 11-month tiding period between thoughts and action. I'm saying that because in this way I could still purchase the property for my mother, but in 2019 instead of this year.

I know the written loan agreement is the sound thing to do, but it would be very, very odd to go through such a process with my own mother! I'm not sure that would go down well.

Once I clear all the cards, should I make constant small purchases and payments on all of them to continue the proving process of being a rock-solid payer, or does my exemplary record to date hold in lieu of the credit being at 0 for a number of months (possibly 11) before the cards are used again?

My partner has credit card debts I intend to clear absolute, also. My question in regards to her is whether her cards being cleared will work in her/our favour (both of us having cards reset to 0 at the same time) when trying to build optimal credit scores/conditions before we attempt to get the best possible joint mortgage we can?

Sorry if my questions seem silly, but I am trying to do right by both of them as well as myself and remove all potential hiccups for the three of us by pre-empting and circumventing them wherever possible.

DCFC79

Its not your credit rating your wanting to build, well in a way it is but no lender can see it. Lenders see your credit history, Martin covered it in his itv show the other week.

Have you get a HTB account setup ?

Get 1 done now if you can, even if you dont use it for your first home its ok.

poggs

Im assuming from the tone of your post, you have come into a sizeable inheritance and now have some spare cash.

Why not gift your mother the mortgage payments until the end of the year so she has nothing to pay.

Keep the rest of the capital in an interest gaining account.

Then at the end of the year buy your own home on the mortgage getting all the first time buyer status benefits

Finally, once all done, pay off your mums mortgage with the capital you left in the account.

I'm pretty sure if you explained this to your mother, she would be delighted. The end result for her is exactly the same. No mortgage payments from now on and the home owned outright.

Scout__2

DCFC79 wrote: »

Its not your credit rating your wanting to build, well in a way it is but no lender can see it. Lenders see your credit history, Martin covered it in his itv show the other week.

Have you get a HTB account setup ?

Get 1 done now if you can, even if you dont use it for your first home its ok.

No HTB account setup - I'll get onto that today. Thanks for the info!

Scout__2

poggs wrote: »

Im assuming from the tone of your post, you have come into a sizeable inheritance and now have some spare cash.

Why not gift your mother the mortgage payments until the end of the year so she has nothing to pay.

Keep the rest of the capital in an interest gaining account.

Then at the end of the year buy your own home on the mortgage getting all the first time buyer status benefits

Finally, once all done, pay off your mums mortgage with the capital you left in the account.

I'm pretty sure if you explained this to your mother, she would be delighted. The end result for her is exactly the same. No mortgage payments from now on and the home owned outright.

Yes, an inheritance that I'm determined to make the best of. A sudden death, so there was no planning and all of this has come out of the blue and pretty much turned my life upside down, hence I'm trying to cram on financial knowledge [far] beyond the remit I had in my own life/structure.

I thank you for your suggestion re. my mother and the mortgage; that sounds like a brilliant idea and solves all the problems I'm thinking of in one fell swoop. :beer:

I was planning to get my finances in order this year well before any of the stuff that has happened came to be, but I'm sort of being propelled along by an external force at the moment, so it is a lot to take in all in one go.

badmemory

Your mother will have your best interests at heart. If she is at all financially savvy she will completely understand any wish for your money NOT to land up with the LA. I'm sure she will also be totally delighted that you are planning to use this money sensibly.

So I would agree with the approach as in post 4. This would secure both her & your position.