Mortgage application advise

Mortgagewannabe

Hello there

This is my first post so please be gentle.

Myself and wife will be applying for a mortgage with precise around July/August this year as we have both had previous adverse credit.

I have read that mortgage lenders do not like you to apply for credit in the 3 months prior you will be applying and obviously not at all until you have your mortgage offer.

However I have a situation which I feel may cause a problem (or I might just be overthinking this)

My wife took out a small loan (£2000) in March 2018 to consolidate some of our debts. The loan is through a credit union and she arranged it to de deducted straight from her salary each month.

In March this year, she topped the loan up and took out an additional £7000. The payments work out at £90 month more than she was already paying (was paying £150 but now increased to £240)

The reason for this loan was to pay off car finance. The car finance was taken out in my MIL name due to us not being able to get finance on our own. My wife transferred the money to my MIL pay the car off, which has now been done.

We are now £210 better off per month and our disposable income is now in excess of £1000 per month.

It was my wifes 30th birthday over the weekend and she opened her birthday card off her mum with a note saying that she has paid our car finance off for us given us the £7000 back.

Although this is a lovely gesture and we really appreciate she has given us this money back, I feel that it now put a massive spanner in the works as it looks as though we have taken out the loan to put towards the deposit (even though we already have our deposit of £12500 saved).

My question is really this

1) Is it going to be an issue that my MIL has given the money back

2) Is it going to be a problem that my wife even applied for the loan 4 months prior to mortgage application.

Mortgagewannabe

Also to add

The £7000 we have been given back, we are going to consolidate the rest of our outstanding (good debts)

nyermen

In advance of the resident genius's here...

Point Number 1: Your conveyancer will likely check everything very closely for ML purposes. So you should have the opportunity to explain in full. As long as you can prove the loan wasn't done that way (statements etc), then it won't be an issue.

Point Number 2:
Every bank has its own models (I know, I've helped develop some of them), and they're all very different in consideration and thresholds. So don't worry too much about 3 months vs 6 months.
Your credit file is important however. Before any mortgage application, it's highly advised to check (in case of anything accidental that shouldn't be there). Was she even checked - probably she was, but it may be that she wasnt "Hard checked" for the credit application, and also is there any outstanding debt as that is the most important thing we look for (that and default / payment markers). Borrowing money and paying it back is a good thing, it shows youre disciplined.

Have you paid the loan off? If not, you may want to consider doing so with the money given back.

ACG

Also in advance of the resident geniuses here....

Interesting question. I suspect most lenders would treat it as a gift if any of the money is going towards a deposit. Some may treat it as a gift even if not as it could be difficult to differentiate what money has been used for what.

In any event, it should not be a major problem.

amnblog

If MIL paid several thousand into your wife’s Bank Account recently expect the Lender to query it.

If it was a returned loan from MIL, expect to be asked to evidence the funds going out to her originally. Otherwise a gift letter/statement may be required.

Not a problem, just needs to be considered properly and managed. Something your Broker can help you with.

Still waiting for a resident expert......

Mortgagewannabe

Thank you everyone for your replies. I have only just had chance to come back on here after my run of shifts so sorry for not replying sooner.

nyermen - Bank statements will show the transaction paid out and also the incoming transaction of MIL so i'm hoping this will be ok. She was hard checked on Equifax but by the time we apply it will be 3-4 months since any credit application. We have a few smaller debts we are going to put the loan towards which will save us more money every month.

ACG - Thank you, I am pretty confident this will be the case but always talk myself out of things.

amnblog - I am happy for them to query it and will have the bank statements as evidence and can also get a letter from MIL saying the money was a gift.

I am glad I asked on here, you have all been really helpful