Deposit or pay off debts?

clipclipclip

Apologies if this is an open-ended question.

I am planning to buy a house this coming year, and I am deliberating where to funnel my disposable income. On one hand, I can put a decent amount into my LISA, say £500 a month. This will help me boost my deposit to what I need for a 90% LTV on the houses I'm looking at. Alternatively, I have about £5k of credit card debts outstanding. These are not threatening for me, as they are on promotional rates of 3.9%, and I am paying them off slowly. But I am concerned that having those debts will affect my ability to borrow for a mortgage - I might not be able to get close to 4.5x my earnings with that outstanding. So the question is:
Boost my deposit or pay off the debts first (or somewhere in the middle)

Appreciate that there's no proper answer until I actually go for a decision in principle, but just hoping to gauge people's experiences on the matter.

hazyjo

I'd clear the debt as it will prob only affect what they'll lend you (and they'll prob take more off for interest and risk)

Good luck!

Lioness_Twinkletoes

I'd look to move the debt to a 0% card and pay them off at a set rate. Say, £200 per month. That'll take two years. In the meantime, save £300 per month into your LISA.

chunkytfg

If you need to borrow at the max the bank will lend you then yes clear the debt as anything that affects affordability needs to be dealt with. If you only borrowing maybe 60% of your affordability then go for the 90% as the interest savings of getting a 90%LTV vs a 95% LTV will be fairly significant.

clipclipclip

Thanks for the advice!

To clarify a few things - I'm looking to borrow on the upper end of what I'm allowed, over 4x my income. The 3.9% for nearly 3 years was the best rate I could get when I spreadsheeted it, as the 0% cards all had decent sized fees upfront (up to 4%) and lasted for more like 2 years. So I'm comfortable with where my debts are. I would also quite like to make the purchase in 2019, because I would rather not live with my parents as a long term thing.

Of course this sounds like I want to have my cake and eat it, so I'm just trying to form an opinion of what would be the best way to satisfy my wants and needs with the resources I have available. I suspect I'll have to go to some fee free brokers in the near future.

diggingdude

I would consider opening an ISA and put in what you can afford into it before the new tax year to get a bonus it also starts the one-year process. Then focus on the credit cards and put away anything else you have spare. That's just my view though not saying it's the right one

Thrugelmir

LISA has annual limit of £4k. £500 a month is £6k in a year.

Suggest you do part and part........

HampshireH

If you want larger mortgage then you are best having zero debt.

They won't like a £200 a month payment when they look at affordability even if you can afford it in practice.

A lot of lenders will offer you many hoops to jump through. Life is simpler when there are less of them.

5k isn't a lot in the grand scheme of things to clear. How much deposit do you have?

clipclipclip

I guess the middle of the road answer is to concentrate jointly on both, so whittling my debt down to £100 a month repayable over 2 years, ie by paying off 2.5k of the outstanding 5k, and only then trying to increase my deposit.

My deposit as it stands is 11k, and I'd like to be going for houses betwen 140-155k.

letitbe90

I had managed to secure quite a sizeable mortgage (400k+) on a 95% basis with ~£30k outstanding debt. I was in the same situation as you, thinking if my debts would affect my mortgage and if I should first pay off my debts. Turns out it all comes down to affordability and having a good credit history, which I do.

You can perhaps get a decision in principle by say Halifax etc to get a rough idea how much you can get now with your debt - and decide whether you want to work on your debt first or get a mortgage.

I decided to go for mortgage as I didn’t want to rent anymore, so I felt any interest I would continue to pay on my debt was worth becoming an owner and making payments towards equity instead of nothing!