Mortgage application prep: Personal Loan to pay off Overdraft?

SimplyRed1001 · 22 January 2019 at 5:12PM

I’m planning to buy my first home at the end of this year. My credit score is just above or just below average depending on which of the 3 main agencies you look at.

No defaults/overdue payments, long electoral role history, long relationship with bank, 1 credit application over a year ago, variety of accounts; personal loan, purchase credit card, balance transfer credit card (which run for 4-6 years) of the report plus mobile phone contract and utilities (which run for 3-4 years).

At application my revolving credit availability should to be ~88%.

The personal loan will repaid this week. Recently I realised I will lose the diversity this loan brings to my accounts and will likely lower my score.

I also have an overdraft which makes up 10% of my available credit amount. I use it almost fully, without ever going over, and pay it off plus 50% with my salary every month.

To retain the diversity in my accounts I’m considering taking out another loan once the current one is paid in full (this week). This new loan would pay off my overdraft and increase my revolving credit availability to ~98%

Would it be wise to take out a personal loan 11 months in advance of a mortgage application to pay off my overdraft?

Pros
1. I will have lower credit utilisation %
2. I will retain the same range of credit report monitored accounts
3. I can likely take the relatively small loan over a long period and pay back early at no cost (specific bank) – this will make the monthly repayment low
4. If I didn’t pay off the loan early what I will incur in Loan interest will be considerably offset by not paying OD fees for that duration. Paying off early may even save me in the long run.

Cons
1. I will have a 11 or 12 month old credit application search in my history. That will make 2 in 22 months - this is the issue I am most worried about.
2. The loan repayment will likely be approx. twice the monthly O/D fee though manageable in a proven budget (e.g. £12 to £30)

[Deleted User] · 22 January 2019 at 5:34PM

Ignore the score as lenders will.

How much is the overdraft for and how much is in use?

SimplyRed1001 · 22 January 2019 at 5:36PM

The OD is £1200, I use all of it every month bar the last £5-£10.

[Deleted User] · 22 January 2019 at 5:43PM

For that small of an amount I wouldn't suggest a loan.

What's your annual salary?

If the loan repayment will be double that of the OD, why not just pay double on the OD from now?

SimplyRed1001 · 22 January 2019 at 5:46PM

All income is budgeted for the rest of the year to ensure I make all of my other commitments to their fullest potential. My salary is above average; does that have some kind of ration to credit used/available?

[Deleted User] · 22 January 2019 at 5:48PM

.. so what is your salary?

Long story short - having a series of loans and an overdraft show to potenetial lenders that you cannot get by with your day to day means without borrowing.

Clearing the loan and OD then applying for a mortgage straight after won't look good - you would need to wait another 12 month or so period from when they were paid off before even thinking of looking at mortgages

SimplyRed1001 · 22 January 2019 at 5:53PM

My salary is £27k and this is not good news. I had imagined I would likely be eligible if I applied at that time and I was trying to improve what I might be offered. Waiting another 12 months after paying things off is something I'd don't really want to consider.

[Deleted User] · 22 January 2019 at 5:55PM

So around £1800 pcm takehome.

I would suggest posting in the DFW board so they can advise you on cutting back on spending etc.

I'm not sure what mortgage you are looking at but a sole application on £27k won't get you much in terms of being lent money unless you have a sizeable deposit.

SimplyRed1001 · 22 January 2019 at 5:59PM

Thanks for your input. I've got my spending nailed down and I've seen alot of promising information on a single application for what I'm looking for and where. I was really looking for info on a personal loan vs an overdraft but will bear what you've said in mind.