How will a car loan affect mortgage application?

coles88

Hi, 
I'm hoping to buy a property next year with a 10% deposit which I'm currently saving for. Based on my current salary and savings level (I earn £55k and put away about £1700 p/m in a LISA + other savings accounts), I should have enough to start the process in May/June. That has been and still is a huge goal of mine, but I've also just reached the top of the waiting list for a parking permit where I live (it's taken almost a year; city-centre living!) and now want to buy a car (I def want to do this because I'm not entirely comfortable getting public transport to visit family with all that's going on - a car will give me back some independence which is much needed for my mental health).
I'm thinking I'll get a loan of up to £7k to do so - I'll get something cheaper if I can find a good deal, but would rather spend a bit more on something newer in the hope that it will be more reliable (though I'm well aware there are no guarantees!!). From what I've looked at I'll be paying back c. £150 p/m for up to 4 years depending on what I go for.
I'm trying to be mindful of how that'll affect a mortgage application next year and would appreciate any advice here... I assume it'll be far away enough that there aren't too many applications for credit in a short time frame. Beyond that, my understanding is that it's another monthly outgoing which will affect my affordability? Would the £7k debt be a factor, or more the £150 monthly commitment? Given the savings I'm putting away now, I can definitely afford it. My only other debt is a 0% interest credit card which will still have a balance when I come to buy (I'm paying off £100 p/m on that), though I have other cards with 0 balance on so my credit utilisation isn't maxed out - clearly getting a loan for a car will impact that. 
Effectively, if next year I'm a solo FTB buyer, earning at least £55k (potential for a raise before then) with a 10% deposit and likely £3 or 4k on a 0% credit card, plus a up-to £7k car loan but access to other un-used credit, am I likely to be OK for a mortgage? I definitely want to buy a car but want to do so in a way that will least screw up my mortgage application next year.
Thanks in advance for any advice.

cooltt

coles88 said:

Hi, 
I'm hoping to buy a property next year with a 10% deposit which I'm currently saving for. Based on my current salary and savings level (I earn £55k and put away about £1700 p/m in a LISA + other savings accounts), I should have enough to start the process in May/June. That has been and still is a huge goal of mine, but I've also just reached the top of the waiting list for a parking permit where I live (it's taken almost a year; city-centre living!) and now want to buy a car (I def want to do this because I'm not entirely comfortable getting public transport to visit family with all that's going on - a car will give me back some independence which is much needed for my mental health).
I'm thinking I'll get a loan of up to £7k to do so - I'll get something cheaper if I can find a good deal, but would rather spend a bit more on something newer in the hope that it will be more reliable (though I'm well aware there are no guarantees!!). From what I've looked at I'll be paying back c. £150 p/m for up to 4 years depending on what I go for.
I'm trying to be mindful of how that'll affect a mortgage application next year and would appreciate any advice here... I assume it'll be far away enough that there aren't too many applications for credit in a short time frame. Beyond that, my understanding is that it's another monthly outgoing which will affect my affordability? Would the £7k debt be a factor, or more the £150 monthly commitment? Given the savings I'm putting away now, I can definitely afford it. My only other debt is a 0% interest credit card which will still have a balance when I come to buy (I'm paying off £100 p/m on that), though I have other cards with 0 balance on so my credit utilisation isn't maxed out - clearly getting a loan for a car will impact that. 
Effectively, if next year I'm a solo FTB buyer, earning at least £55k (potential for a raise before then) with a 10% deposit and likely £3 or 4k on a 0% credit card, plus a up-to £7k car loan but access to other un-used credit, am I likely to be OK for a mortgage? I definitely want to buy a car but want to do so in a way that will least screw up my mortgage application next year.
Thanks in advance for any advice.

Any outstanding balances are taken off the maximum amount they will lend. With no debt and normal outgoings they will lend 180,000 for example. With a balance of 7k on a vehicle it will be 172000 approx, possible even lower at 170,000. It's all about existing and future risk to them.

Pay down as many balances as you can and bear in mind those balances take 6 weeks to update with credit reference agencies.

dimbo61

Yes of course taking out a loan will effect the amount you can borrow when applying for a mortgage.
I could ask why you need a car now ?
I could say buy something for £2,500/£3,000 and pay cash  and don't take out finance.
However building up your credit score sometimes requires you to have credit.

coles88

cooltt said:

coles88 said:

Hi, 
I'm hoping to buy a property next year with a 10% deposit which I'm currently saving for. Based on my current salary and savings level (I earn £55k and put away about £1700 p/m in a LISA + other savings accounts), I should have enough to start the process in May/June. That has been and still is a huge goal of mine, but I've also just reached the top of the waiting list for a parking permit where I live (it's taken almost a year; city-centre living!) and now want to buy a car (I def want to do this because I'm not entirely comfortable getting public transport to visit family with all that's going on - a car will give me back some independence which is much needed for my mental health).
I'm thinking I'll get a loan of up to £7k to do so - I'll get something cheaper if I can find a good deal, but would rather spend a bit more on something newer in the hope that it will be more reliable (though I'm well aware there are no guarantees!!). From what I've looked at I'll be paying back c. £150 p/m for up to 4 years depending on what I go for.
I'm trying to be mindful of how that'll affect a mortgage application next year and would appreciate any advice here... I assume it'll be far away enough that there aren't too many applications for credit in a short time frame. Beyond that, my understanding is that it's another monthly outgoing which will affect my affordability? Would the £7k debt be a factor, or more the £150 monthly commitment? Given the savings I'm putting away now, I can definitely afford it. My only other debt is a 0% interest credit card which will still have a balance when I come to buy (I'm paying off £100 p/m on that), though I have other cards with 0 balance on so my credit utilisation isn't maxed out - clearly getting a loan for a car will impact that. 
Effectively, if next year I'm a solo FTB buyer, earning at least £55k (potential for a raise before then) with a 10% deposit and likely £3 or 4k on a 0% credit card, plus a up-to £7k car loan but access to other un-used credit, am I likely to be OK for a mortgage? I definitely want to buy a car but want to do so in a way that will least screw up my mortgage application next year.
Thanks in advance for any advice.

Any outstanding balances are taken off the maximum amount they will lend. With no debt and normal outgoings they will lend 180,000 for example. With a balance of 7k on a vehicle it will be 172000 approx, possible even lower at 170,000. It's all about existing and future risk to them.

Pay down as many balances as you can and bear in mind those balances take 6 weeks to update with credit reference agencies.

Thanks - that's exactly what I was trying to understand i.e. exactly how the size of the loan would affect the mortgage offer. Much appreciated. 

coles88

dimbo61 said:

Yes of course taking out a loan will effect the amount you can borrow when applying for a mortgage.
I could ask why you need a car now ?
I could say buy something for £2,500/£3,000 and pay cash  and don't take out finance.
However building up your credit score sometimes requires you to have credit.

Thanks for your answer - my question was 'how' not 'will it' - I know it's a given. Just wanted the necessary info. to make the best decision for me. 

moneysavinghero

Cancel the credit cards with 0 balance - although there being no debt on them now, from a lenders point of view there is nothing to stop you running them up to there max in the future.

90% mortgages are severely rationed at the moment - the more you can make yourself look like the ideal borrower the better the chance they will decide to give it to you and not someone else with better finances. You managed this long without a car, why not wait until you have your new house before you buy it.