Grooming credit report for mortgage application?

greensalad

I'm getting ahead of myself but at the same time it does seem sensible to start as early as possible. We are hoping to buy a house next year (Autumn/Winter 2021) and I figure it is now time to start trying to make some changes that could prime us for an application, especially if the market is as tough as it is right now. We're working on an assumption of 90% LTV and hoping the mortgage offerings improve next year.

We have debts currently which we are working on paying off at the same time as trying to fill our LISA allowances for 20/21, hence breaking the golden rule of "save before debt repay". That's because all our debts are 0%, so we'd rather have the 25% bonus. 

A few questions remain though:

1. My own CC will be paid off next January, but we were planning to pay off just enough each month off my OH's CC to pay it off at the end of his 0% period which is February 2022. Considering we could be looking to buy or get an AIP around then, would it be better to pay it off earlier so we have no credit card debt at all? I'm guessing if we did this we can remove the minimums from our outgoing expenditure upon mortgage application. I'm guessing that is a better position to be in than "we pay £300 a month to a CC, but don't worry it'll be paid off in 3 months"

2. I have a CC which is empty but I kept it open and have just one payment that goes through it per month to satisfy the transaction requirements to keep it open. It's got a limit of £6,500 so I kept it open to help my credit utilisation stay low, but is it better off closing it? It's fairly new in terms of my other accounts too so isn't longstanding.

3. We have a joint Barclays account which is our oldest account. We both use Monzo (both joint and personal) for all our finances but I don't know if they report to credit agencies? (They don't appear on the file). Should we close it, or keep it open, or start using it?

4. I have missed payments from 2018. So by the time we buy they'll be 3 years old. This is my big fear that this is going to put a total dampener on any mortgage application. They are for bounced direct debits with First Direct, small amounts, but still. No defaults, no CCJs and my OH's report is clean but mine is not. 

5. Is there anything else we can do to help now, aside from saving as much as we can and not taking out new credit?

amnblog

Don’t waste your time worrying like this. Keep on top of your finances and pay your bills is all you need to do.

Thrugelmir

Set yourself a challenge to clear the credit card debt but not reduce your monthly saving to the LISA. A new home will be putting demands on your purse strings. 

greensalad

Thrugelmir said:

Set yourself a challenge to clear the credit card debt but not reduce your monthly saving to the LISA. A new home will be putting demands on your purse strings. 

That's pretty much what we're already doing. We slimmed down all of our bills to the minimum a few months ago, just switched energy deal, the only thing we're waiting for now is my partner's pension match selection to be editable again (he was saving 9%, company match 5%, so we're going to bring it down to 5%). Just going through each month clearing debt so that we can be debt free ASAP but still get this year's full LISA bonus. By January all we'll have is his credit card. That's why I wasn't sure if it made sense to forego two months of deposit saving to just get his card cleared. If we don't have the card to pay each month, we'll save more, so it works out about the same. 

We're currently saving around £2k per month and hope that pension contribution reduction, student loan completion and our last bits of debt will bring that up to £3k+ per month by next Spring. Various calculators show our mortgage payments would be less than what we pay in rent, or if going for a worse rate, the same. I've crunched the numbers on a few different affordability calculators and the figure we want to borrow is less than what most would offer based on our salaries and fixed outgoings (done a few on banks own provided calculators and on third party calcs like MAS)

csgohan4

Any debt will impact the amount you can borrow. Have you tried a mortgage calculator to see how much you can borrow on current levels. i believe MSE has one too

Credit utilisation is only one part of the jigsaw

greensalad

Yes, I've looked at quite a few different calculators. Our affordability is still good even with the credit card payments, because we're looking to borrow less than what the banks would offer us maximum. Still I guess maybe it does make sense to just clear it.

kingstreet

If you are "affordability-rich" concentrate on building your deposit not repaying debt. Soon, even 85% mortgages will come under pressure and availability and rates will be affected.

greensalad

That's a good way to think about it.
I guess if we save into easy-access accounts (eventually we'll fill the LISAs beyond what it's worth saving in them) we could always take that money out of deposit savings and use it to pay off what remains of the CC if, say, a broker suggests that it would be better or that there is a good 10% option available? We are still just ploughing on with 10% as our target but I have also started forecasting for 15% and just seeing what the market is like when we have 10%.