Outstanding Loan Balance and Mortgage Application

Viper77

Hi there,

Just looking for some advice, I have searched the forums and think I know the answer but having no experience of mortgage applications I'm just looking for some guidance.

My girlfriend and I are hoping to apply for a joint mortgage next year. Both First Time Buyers.

I have a personal loan with an outstanding balance of approx £16k. I also have 0% credit cards with a combined balance of £3,000. The credit cards will be paid off before the mortgage application (currently leaving the balance on so that I can fill both of our LISAs for this tax year to take advantage of the 25% bonus).

My question is, how much does the outstanding balance on a personal loan affect a mortgage application if you still fall within the affordability criteria in terms of available monthly income?

The online calculators I have tried all point towards being fine, but I'm not sure how accurate they are to individual circumstances. When the time comes I will be seeking a mortgage broker, but just for planning wanted some advice.

Background info:
House price likely about £200,000
Combined monthly income of £3,547
Loan repayments £341 per month
Currently saving £1,250 per month and paying £375 per month rent

I know that paying off the Loan first is probably the 'better' option, but it would delay us another year from getting a mortgage and we are keen to move out of our 1 bed flat sooner if possible!

Thanks for the advice.

hazyjo

Viper77 wrote: »

Loan repayments £341 per month
Currently saving £1,250 per month

So basically you're paying to borrow money you already have :think:


IMO you should have used that £1250 pm to clear the loan first.


Things may have changed, but from my experience, they will offer you less (to take into account loan payments plus risk/interest, etc).

G_M

why are you paying off a 0% credit card but continuing to pay interest on a loan?


Re your Q, the more you owe when you apply, the more likely a refusal, or higher rate, or lower amount granted. Different lenders will have different responses to your circumstances.

Crumble2018

We have a mortgage offer from nationwide with £18,000 outstanding on a loan, and 2 car finances. You'll get a mortgage, but it will affect how much you can have. Our salaries should in theory allow us to borrow around £300,000, but we could only get around £230,000.

Viper77

Thanks. I know it's costing me more, but the loan repayments are affordable and the attraction of buying sooner rather than later appeals to me now that my girlfriend has moved in. Paying the loan off first is the most cost effective option, but would delay us another year.

If it meant not being accepted for a mortgage I would wait, but if I can get accepted for a mortgage with the loan then I'd prefer to buy a house first, then pay off the loan over the following 12 months (which I should be able to do).

Thanks for the advice

hazyjo

Your thinking appears a little skewed to me. You're better off not saving right now and clearing that loan within 12 months. How do you expect to find £19k in a year if you're also paying a mortgage (presumably borrowing near your max or you'd not be asking)?!


Your rent is only £375pm. How much would a mortgage be each month? Why do you think you could find more money to clear the loan in a year once you have a mortgage and a shed-load of other expenses?

Viper77

Your thinking appears a little skewed to me. You're better off not saving right now and clearing that loan within 12 months. How do you expect to find £19k in a year if you're also paying a mortgage (presumably borrowing near your max or you'd not be asking)?!

Perhaps it is, which is why I am looking for advice. My thoughts are this loan has been a consistent expense for a while and at present it's comfortable. On top of paying the monthly repayment + rent + minimum credit card repayments, we are still managing to save £1,250 a month. We are putting the majority of that in LISAs as if we both max out the LISAs this tax year and next tax year that will be an extra £4,000 in government bonus, which is considerably more than we'd save by paying off the loan early.

The mortgage even at 3.9% would be £950 if we ended up getting a £200,000 house.

Our £1,250 savings, + £375 current rent, Minus £950 future mortgage = £675 left.

Even with extra expenses associated with buying a house I reckon that would still leave enough to make at least double payments on the loan.

Again I have no experience with mortgages which is why I asked, so I could be way off with my thinking and appreciate the advice.

My main question isn't what's cheaper, but how much it would affect the mortgage application, but I appreciate all the advise I can get.

kingstreet

Viper77 wrote: »

My question is, how much does the outstanding balance on a personal loan affect a mortgage application if you still fall within the affordability criteria in terms of available monthly income?

Very little/none at the level you have disclosed.

If it was more than your gross annual income it might be an issue.