Mentioning soon-to-be-paid-off debt on Agreements in Principle?

tbs152

Hi there. I am planning to buy my first home later in the year and am looking at an Agreement In Principle before the search begins.

I am currently in the process of paying off approximately £10,000 credit card debt at a rate of £2,000 per month. My credit rating is still 900+ because my total credit card line is just over £30,000, so utilisation is reasonable. My annual income is around £50k if that matters.

My question is, because I will have paid off the debt by the time the actual mortgage application takes place (let's say 5-6 months from now), am I clear to list debt at £0 (or a low amount of £1000) for the Agreement In Principle? I feel listing it this way is more representative of what my position will be when the mortgage application takes place.

My understanding is that an AIP is a soft credit check, meaning they won't actually verify specific amounts, but rather just look at overall creditworthiness (which is hopefully good with a 900+ score from Experian).

Any advice appreciated!

jamielutz1987

@tbs152
We were in a similar situation (cc debt to be cleared before completion), our broker put it at 0 in the DIP and application. This was with Halifax. Which lender is it?

Edit: A broker on the thread has kindly pointed out that this not how a broker would do it, so I probably misunderstood what my broker did.

Cscott139

You will need to disclose the current debt on the form but there should then be an option so say that this will be cleared prior to the mortgage completing.

tbs152

jamielutz1987 said:

@tbs152
We were in a similar situation (cc debt to be cleared before completion), our broker put it at 0 in the DIP and application. This was with Halifax. Which lender is it?

No lender just yet -- all in the preliminary stages. Appreciate your reply. 

tbs152

jamielutz1987 said:

@tbs152
We were in a similar situation (cc debt to be cleared before completion), our broker put it at 0 in the DIP and application. This was with Halifax. Which lender is it?

One other thought, if you know the answer: if I have a loan which is due to complete its term before the mortgage application will be submitted, should I still include this on the DIP?

jamielutz1987

tbs152 said:

jamielutz1987 said:

@tbs152
We were in a similar situation (cc debt to be cleared before completion), our broker put it at 0 in the DIP and application. This was with Halifax. Which lender is it?

One other thought, if you know the answer: if I have a loan which is due to complete its term before the mortgage application will be submitted, should I still include this on the DIP?

@tbs152 I'm not sure but I assume the logic is the same as cc debt (assuming that the loan won't be replaced by a new loan, for instance PCP car loan). I'm not a broker though and maybe it differs from lender to lender.

I will put in a disclaimer here that I never do DIPs myself, I leave that to the broker as they'll know exactly what to put.

amnblog

jamielutz1987 said:

@tbs152
We were in a similar situation (cc debt to be cleared before completion), our broker put it at 0 in the DIP and application. This was with Halifax. Which lender is it?

I imagine your Broker did not do this, as this is not the way to handle it.
When running an application in principle the Lender checks the credit file(s) for details of all credit past and current.
For current lending balances are noted.
When credit accounts are repaid it can be some weeks before this is reflected on the credit file. For this reason a broker will key in recently cleared debt as if it is still in force, then log it as to be repaid before completion.

The difficulty comes in that some Lenders will charge all existing debt on application against affordability regardless of whether it will be repaid before completion - an easy way for the borrower, if applying direct to lender, to shoot themselves in the foot.

tbs152

@jamielutz1987 Appreciate your advice. We are actually going through a broker too, as I've been told they basically know how to get the absolute best deals and know the forms etc. back to front. I'll confirm with the broker what the best approach is but I just didn't want debt counting against me when I know it won't exist when the actual application is submitted (rather than the DIP). Thanks again!

jamielutz1987

amnblog said:

jamielutz1987 said:

@tbs152
We were in a similar situation (cc debt to be cleared before completion), our broker put it at 0 in the DIP and application. This was with Halifax. Which lender is it?

I imagine your Broker did not do this, as this is not the way to handle it.
When running an application in principle the Lender checks the credit file(s) for details of all credit past and current.
For current lending balances are noted.
When credit accounts are repaid it can be some weeks before this is reflected on the credit file. For this reason a broker will key in recently cleared debt as if it is still in force, then log it as to be repaid before completion.

The difficulty comes in that some Lenders will charge all existing debt on application against affordability regardless of whether it will be repaid before completion - an easy way for the borrower, if applying direct to lender, to shoot themselves in the foot.

Thanks @amnblog that is good to know. I probably misunderstood what he said as our Halifax AIP figure was a simple multiple of our income. That's why I never do DIPs myself, always leave it to the broker

I'll correct my initial post to reflect what you have said so I don't inadvertently mislead a reader.

jamielutz1987

tbs152 said:

@jamielutz1987 Appreciate your advice. We are actually going through a broker too, as I've been told they basically know how to get the absolute best deals and know the forms etc. back to front. I'll confirm with the broker what the best approach is but I just didn't want debt counting against me when I know it won't exist when the actual application is submitted (rather than the DIP). Thanks again!

Don't worry, the broker will present it in the right way. I would just leave it to them.

tbs152

The difficulty comes in that some Lenders will charge all existing debt on application against affordability regardless of whether it will be repaid before completion - an easy way for the borrower, if applying direct to lender, to shoot themselves in the foot.

@amnblog Thanks for your input -- very valuable. In this case, if I have debt (i.e. the £10k of CC debt) when I submit my Decision In Principle which I know will be paid off when the actual application happens, how should I handle it? Don't want to shoot myself in the foot!