Prelimary planning to get a good mortgage deal

TonyB1975

We are currently renting down south, we have just sold our old home up north (that we rented out). We should have around £44,000 in the bank after the sale of our current property. The mortgage that we paid off on sale was a together mortgage with Northern Rock (NRAM). We took out the associated loan at the same time, which we have not yet paid off and has been delinked. The balance of the loan is about £26,000. Interest on the loan will be charged at 8% over SVR - we will be paying approximately £300 per month for the next 20 odd years. Its in the joint names of me and my other half.

We are buying a new build with Help to Buy, the purchase price for our new property is £385,000, so once we put the 5% - £19,250 - to one side we have around £24,750 from the proceeds of sale to settle some debt (we have a separate savings account for the stamp duty, solicitors costs, etc which is on track to have enough by next august when the house is ready). Our intention has been to pay off the together loan for fear of interest rate rises which make it even more extortionate.

However –my other half and me have about £18,000 worth of credit card debt, we pay a little over minimum payments, but it’s always been manageable. They are spread out as follows

Mine– Barclaycard £8,993.02 (limit £10,300)
Mine – Halifax MasterCard £3,138.84 (limit £4,000)
Mine – Virgin – £4,000 (limit 5,100)

Credit Card utilisation – 80%

Other 1/2 – Ocean - £1475.00 (limit £1,750)
Other 1/2 – Capital One - £607.27 (Limit £1,500)
Other 1/2 - Vanquis - £00.00 (limit £500) - card used for work purchases, claim back on expenses.

Credit Card utilisation - 62% (according to Equifax)

I’ll finally get to the question – Our credit scores aren’t great – namely because of the total borrowing at the moment (we have no issues with monthly repayment, both on the electoral register, etc) – we anticipate it’ll improve once we’ve paid a chunk of debt off and want it to improve further – at the same time we want to look good on our mortgage application. The advice needed is do you think we should retain some of the loan and settle some of the credit cards debt or just pay off the loan? I’ve heard a lower card utilisation rate looks attractive to lenders (and can’t hurt the credit score). It would take about £7,000 to get us down to 50% utilisation on the cards. But saying that the loan is joint so impacts both our credit files.

What would have the most immediate impact? How should we spread out the £24,750?

In addition, we will have about £700-800 per month spare which will be going towards debt until next August, so whatever debt remains we can continue to pay down. We think if we can make a good call now, it’ll help you to get us a good mortgage rate later.


Thanks in advance for any good advice

foxy-stoat

I would clear ocean and capital one cards first and cancel them, then the delinked loan and overpay until its cleared.

Assuming you have done the PPI reclaim thing and all other credit card debt is 0% or low interest rates, just clear the highest interest rate first.

Oh pay no attention to the credit scores and the lender wont either.