Acceptable debt before mortage application

letitbe90

I have the following debts:


Bank loan 1: £11000
Bank loan 2: £5000
CC 1: £2200
CC 2: £6660
CC 3: £4000
CC 4: £5500


In total ~£35,000.


I am earning ~£110,000 a year. Of course I could go full whack at clearing this, but instead of clearing all of it as soon as possible, I'd like to also save for some deposit. What is the ideal break even point of how much debt I can keep before applying - and is there a preference of which one I clear? Budgeting for a property between £300k-400k.

I am paying well above minimum payment and currently putting ~£1,500 a month towards them. I could afford to increase but at the same time I want to increase the deposit pot.

Thoughts?


NB:


i. No missed payments, CC's or defaults
ii. Also lease a car ~£200 a month on PCP, shows as £16,000 on credit report (yuck!)
iii. Renting at present

[Deleted User]

The one to clear is the one at the highest rate. If all are higher than the rate on your savings, I would clear them all.

Lenders will take the debt into account for affordability - so see a broker as to where to go if you intend to keep the debt.

[Deleted User]

I would clear them all if you have the money to do so, then start looking at mortgages.

kwame41

Wow that level of debt with your income!


Have you been stoozing? :-)


Clear the cards before applying at the very least I would say.

Nebulous2

It might be worth posting in the mortgage forum. It would also be worth talking to a broker. At that level of income you can get off with carrying a bit of debt, but it will impact the amount you can borrow.

Try some of the eligibility calculators that lenders provide, and that will give you a steer as to how much you need to pay off.

letitbe90

kwame41 wrote: »

Wow that level of debt with your income!


Have you been stoozing? :-)


Clear the cards before applying at the very least I would say.

I ended up with it to help family, this was when I was earning around half of what I do. Naturally this means I have minimal saving.

If I go to clear debts first, it will probably mean delay of mortgage due to not having the 10% deposit. So I want to clear them but maybe I need to work with the golden ratio of debt for my mortgage needs, so I can get on the property ladder within 18 months ideally as I am wasting money via renting. So yes my savings interest will be lower than my debt, but then I am sinking my rent into nothing when it could be paying a mortgage for equity.

Hope that makes sense - if I wasn't paying rent (i.e. paying a mortgage or living with parents instead) I wouldn't hesitate to just pay off debts rather than save for a deposit.

My mortgage in principle if I had no debt would be around £500k. I would only need as little as £270k and as high as £400k for a mortgage for what I am looking for. So obviously my debt will reduce that £500k, but how much debt do you think I can get away with so it is still enough to cover ~£300k mortgage affordability say?

[Deleted User]

There is no golden ratio. You need a broker.

Dobbibill

Don't think of rent money as a waste - it provides a roof over your head and your LL is responsible for all repairs like roof/boiler etc.

With a mortgage you would be paying that AND be responsible for repairs to the roof/boiler etc. so effectively costing you the same per month as you need to budget for these things.

Clear anything that costs you more than your savings earn you.

Waiting is not really a bad thing.

letitbe90

Dobbibill wrote: »

Don't think of rent money as a waste - it provides a roof over your head and your LL is responsible for all repairs like roof/boiler etc.

With a mortgage you would be paying that AND be responsible for repairs to the roof/boiler etc. so effectively costing you the same per month as you need to budget for these things.

Clear anything that costs you more than your savings earn you.

Waiting is not really a bad thing.

Yes I would be responsible for those things, but they aren't even a fraction of the cost of the rent, which could instead be a mortgage. At least with a mortgage, I am earning equity which over the long term is probably going to increase. I don't believe renting is good value for money at all even with the landlord being responsible for repairs.

cjv

There are plenty of mortgage calculators available to intermediaries (you can use them too) which allow you to input your current debt/repayments etc. have a browse on google.

Here is one that I used recently to give me an idea of how outgoings will affect the amount I can borrow:

http://intermediary.tsb.co.uk/tools-and-calculators/mortgage-affordability-calculator/

Thrugelmir

letitbe90 wrote: »

I am paying well above minimum payment and currently putting ~£1,500 a month towards them. I could afford to increase but at the same time I want to increase the deposit pot.

Thoughts?

Only £1,500 per month? You've the power in your own hands if you really wanted to. Six months of hard saving would soon make a real difference.