Will getting a car loan help with my mortgage application?

joanna__

Hello everyone,

Will getting a car loan help or detract from my mortgage application? I am conscious that I am 25 and have not had a large amount of credit such as a car loan before. I have had credit cards in the past and have always paid them off so I have an excellent credit score on both Experian and CreditKarma. I also use MSE credit club and can see I have a rating of 'good' for loan affordability. I have no debts such as credit cards but I do have government student loans which I am paying off gradually which gets taken out of my pay each month. I am a teacher and looking to buy a shared ownership property towards the beginning of next year with my partner who has had car payments in the past and noticeably, they have much greater available credit than me and offers on credit cards. The car I use to get to work which is an hour-long commute in stop/start traffic at the moment is on its way out so I was considering getting a car loan of 10k to get something new and in warranty with Kia (around 180p/m). At the moment I am living with parents so have a considerable amount of income free and am aware I will not have any payments to landlords showing rent consistently paid each month. Do you think this would help give my credit a boost or would this completely ruin the chances of getting a mortgage it being close to an application?

Thanks for any advice!

Grumpy_chap

I understand  the logic of the new car, but it must detract from whatever mortgage you can get in a year or so.

Can you make things work by postponing the car, get the house first and then re-evaluate finance and what remains for a better car than you presently have?

DrEskimo

No, don't buy an overly expensive car and pay interest and increase your financial risk on some pretence that it's worth it for a credit worthiness point of view.

Your mortgage application will be better without debt. Save up and replace your car when you can/want to.

joanna__

Grumpy_chap said:

I understand  the logic of the new car, but it must detract from whatever mortgage you can get in a year or so.

Can you make things work by postponing the car, get the house first and then re-evaluate finance and what remains for a better car than you presently have?

Thank you so much for your reply. I would prefer to be able to get the max mortgage amount so I will see what I can do. If it does break on me I do have enough saved up to buy a decent one but at least it would not affect my credit amount. Thank you so much! 

Carrot007

joanna__ said:

I would prefer to be able to get the max mortgage amount so I will see what I can do. If it does break on me I do have enough saved up to buy a decent one but at least it would not affect my credit amount. Thank you so much! 

Getting the "MAX" moprtgage amount is pushing yourself to the limit. Many things occur and can cause issues.

Unless it's the only option in your area (which seems unlikely, move 20 miles and get it cheaper) then why would any sane person go for the "MAX"/ I have never gone for more than 50% of what a mortgage company says they would lend me. Possibly can go higher these days as things have tightened. But still, plan for the future. Unless you have saving and don't really need a mortgage you are playing with fire.

Grumpy_chap

joanna__ said:

I would prefer to be able to get the max mortgage amount so I will see what I can do. If it does break on me I do have enough saved up to buy a decent one but at least it would not affect my credit amount.

Do think as well, if you spend money on a car before the house, and then the dream house is, say £4k out of reach, but you have a £6k car (cost you £6k but by then depreciated), will you be kicking yourself when you can't get that house?

MovingForwards

Use your CC for food shopping / petrol, pay it off in full each month after the statement is produced and that shows responsibility with credit.

Make sure you are on the electoral roll.

Don't take out finance to buy a car, keep the one you have going.

Lenders have tightened up criteria due to covid, reading the mortgage board shows that things are not as easy as they were 6 months ago, who knows what their stance will be next year. Is a newer car worth risking not getting the mortgage you want?

Lastly, ignore the credit score and rating, they are not seen or used by any UK financial institution. It's the credit history they see eg payments made on time, missed / late payments, defaults, CCJs, IVA, bankruptcy etc.

Checkmyfile has all four credit reference agencies in one report, but it costs after the initial trial.

MSE credit club
Clearscore
Credit karma

Offer free access to your reports, the 4th agency is barely used.
Not all lenders report to all credit reference agencies and so you need to check the three of them to make sure the content is accurate.

MinuteNoodles

joanna__ said:

 I am a teacher and looking to buy a shared ownership property towards the beginning of next year with my partner who has had car payments in the past and noticeably, they have much greater available credit than me and offers on credit cards. 

Mortgages are different to the offers your partner is getting. Your partner is getting more offers for unsecured credit. A mortgage is secured on the property so if you don't pay the lender ends up with a tangible asset. So whilst a history of borrowing and repaying large amounts may make it easier to buy a big ticket item on unsecured finance, the fact you've only had limited finance and for small amounts won't exclude you from getting a mortgage.