Student overdraft - Will it affect a mortgage app?

WibblyGirly

Hello

I'm trying to decide on an action plan. I'm about to start my first post grad job so will have about £500 a month spare to either add to my LISA or to pay off my overdraft.

My overdraft is free for another 2 or 3 years as my account is now a graduate account.
I know overdrafts (and being in them) is bad in general, but how bad is it when its a free one? I never go out of the overdraft to get charges and if I can add that money to my LISA then its extra bonus for when I come to buy a house next year.

My problem is I won't have enough spare money to both pay off the £1800 overdraft AND save £4000 in my LISA to get the extra £1k bonus.
Do they take into account how long I've been out of my overdraft when coming to mortgage applications?

I want to have a set plan before my first wage comes in so I know exactly what I'm doing with it and therefore cannot be tempted to spend it on fun stuff :rotfl:
Thanks for any guidance!

Thrugelmir

Debt is debt. Whether it is "free" or not. One day it has to be repaid. That's what trips people up. As they don't end up repaying debt as life gets in the way.

AnotherJoe

It still ought to work out better getting the £1k extra. That will then pay off half the £1800 overdraft.

RobM93

How long until you're looking for a mortgage? I would suggest clear it ASAP, but if you're not going to look for a couple of years then the bonus of the extra money in the LISA is likely to be more of a benefit than the clearing of the overdraft.

If it's more than a year you should have enough to both clear the OD and top up the LISA - £500/month *12 months = £6000 (£4000 LISA + £1800 OD + £200 extra). Me and my partner only cleared her student loan about three months ago and it hasn't (or doesn't seem to have had) any impact on our mortgage applications.

WibblyGirly

Thrugelmir wrote: »

Debt is debt. Whether it is "free" or not. One day it has to be repaid. That's what trips people up. As they don't end up repaying debt as life gets in the way.

I know this I have been in debt before and have cleared it all. My student overdraft is the only debt I have and I only use my credit card for very small amounts which is paid in full each month to make my credit file look good. The worst of my debts have been wiped off my file now as it has been over 6 years.

We'd be looking to get a mortgage about February time. I may get a few small lumps of cash before then from my family (very generous of them!) which would help a lot but isn't guaranteed so do not want to count on it.

RobM93

I'd say from a peace of mind point of view just get rid of the overdraft - once that's paid off you can focus on topping up the LISA. The good thing about this is that the overdraft is still there if you need it - in an emergency you could withdraw the money again without penalty. As soon as the money is in your LISA withdrawing it is either going to take away from your allowance or cost you extra

If you do get extra lumps of cash they can go towards helping you top it up - if you have to delay a couple of months, so be it. You might end up not finding a house you want for that amount of time anyway.

dimbo61

All I can add is try and do both !
Living in your Overdraft each month will ring alarm bells with Lenders so paying down the Overdraft while also saving the £4000 a year would be a wise move.
Are you living at home with parents and saving ?

WibblyGirly

RobM93 wrote: »

I'd say from a peace of mind point of view just get rid of the overdraft - once that's paid off you can focus on topping up the LISA. The good thing about this is that the overdraft is still there if you need it - in an emergency you could withdraw the money again without penalty. As soon as the money is in your LISA withdrawing it is either going to take away from your allowance or cost you extra

If you do get extra lumps of cash they can go towards helping you top it up - if you have to delay a couple of months, so be it. You might end up not finding a house you want for that amount of time anyway.

I hadn't thought of that! The overdraft will probably be useful if anything breaks in the new house before savings are rebuilt! Yes I anticipate it will not be easy to find the right house very quickly, were looking in a specific area and have a certain criteria for what we'd like.

dimbo61 wrote: »

All I can add is try and do both !
Living in your Overdraft each month will ring alarm bells with Lenders so paying down the Overdraft while also saving the £4000 a year would be a wise move.
Are you living at home with parents and saving ?

I don't live at home. My partner and I have moved into a cheaper rental (1 bed) than we'd like so we can save up extra money faster. We already have a healthy deposit but we want to try add another £4k each to our LISA's to give us another £10k to add to to it which will take us into 20% deposit territory. :T

kingstreet

Typically, 5% of balance used in affordability, same as for card debt.