Debt type perception by mortgage lenders

laney1991

Hi all, first post so please bear with me...!


I've got some credit card debt left, which I'm trying to clear, and start saving for a house.
I've also recently decided to try to sell my car and swap it for something smaller/cheaper/more economical, but intend to sell mine, free up the cash to clear my credit cards, and purchase the new one on credit.
It got me thinking, how are different types of credit perceived by mortgage lenders?
I know payday loans are a black mark to lenders, but a car finance deal is considered OK, provided it's not a frivolous purchase (very expensive and deemed 'unnecessary' by the lender)
I don't want to use credit cards - I want to clear these, so my options are
- lease
- PCP
- hire purchase
- bank loan


There are some pretty good lease deals I've found, but I'm worried about not owning the car and starting from scratch in 2 years time (longest lease I'd be prepared to commit to)
PCP deals seem expensive compared with leasing - I guess you pay for the flexibility
Hire purchase I think would be the preferred option, however a bank loan may cost less in interest.


I guess what I'm trying to say is that if I embark on a hire purchase or bank loan to buy a car, in 1-2 years time (hopefully) when I come to apply for a mortgage, which is going to be looked at more favourably by a mortgage lender?


Sorry for the essay and thanks, any thoughts/feedback appreciated

[Deleted User]

Very little difference, if any. Any of them will impact your affordability in a similar way.

Go the cheapest option, but I would also look for flexibility - ie one you can pay off quickly and don't get tied in.

MEM62

laney1991 wrote: »

I know payday loans are a black mark to lenders, but a car finance deal is considered OK, provided it's not a frivolous purchase (very expensive and deemed 'unnecessary' by the lender)

The lender has no way of knowing what type of car your finance is for so cannot deem is frivolous or otherwise.

System

Just remember that every £1 you spend on finance/borrowing is one £1 less your mortgage lender is likely to be able to lend to you given you have to meet affordability criteria based on current borrowing, financial commitments and income.

takman

laney1991 wrote: »

I've also recently decided to try to sell my car and swap it for something smaller/cheaper/more economical, but intend to sell mine, free up the cash to clear my credit cards, and purchase the new one on credit.

If your selling your car to clear debts and then getting in more debt to buy another car your just shifting the debt and not really gaining anything. Especially considering your looking to get a mortgage then i would say your two options are:

1 - keep your current car and put as much money as you can to pay off your other debts
2 - sell your car then use some of the money (up to around £1000) to buy a cheap car outright, you can then save up and buy a better car when you can afford it.