📨 Have you signed up to the Forum's new Email Digest yet? Get a selection of trending threads sent straight to your inbox daily, weekly or monthly!

What better for securing a mortgage being debt free or having a good deposit

Options
My current financial situation is I have approx 15k outstanding on personal loans and around 10k of credit cards between me and my wife. Because of this our credit isn't great (it's not bad it's just we have a fairly high debt to income ratio). We recently came into some money 50k and area looking at buying our first house. Although we have high debt we are not in arrears from the view point of securing a mortgage are we best off saving the bulk of the 50k for a deposit or completely clearing our debts and having a 20-25k deposit bearing in mind with our debts cleared we will be able to save a fair bit of additional cash and we are not looking to buy until my daughter leaves school next June?

Comments

  • annetheman
    annetheman Posts: 1,042 Forumite
    Ninth Anniversary 500 Posts Photogenic Name Dropper
    Rchshrk said:
    My current financial situation is I have approx 15k outstanding on personal loans and around 10k of credit cards between me and my wife. Because of this our credit isn't great (it's not bad it's just we have a fairly high debt to income ratio). We recently came into some money 50k and area looking at buying our first house. Although we have high debt we are not in arrears from the view point of securing a mortgage are we best off saving the bulk of the 50k for a deposit or completely clearing our debts and having a 20-25k deposit bearing in mind with our debts cleared we will be able to save a fair bit of additional cash and we are not looking to buy until my daughter leaves school next June?
    A mortgage advisor is better placed to answer you but the point you made here is the first thing that came to mind - the money you will not be spending paying off the debts + interest is what you could be investing in a savings account (LISA if you're FTBers?); if I were in your position, I'd definitely spend the 25K clearing all the debts, then live frugally, putting all the money you would have put into debt repayments into your savings.
    Current debt-free wannabe stats:
    Credit cards: £9,705.31 | Loans: £4,419.39 | Student Loan (Plan 1): £11,301.00 | Total: £25,425.70
    Debt-free target: 21-Feb-2027
    Debt-free diary
  • MFWannabe
    MFWannabe Posts: 2,458 Forumite
    Part of the Furniture 1,000 Posts Name Dropper Combo Breaker
    Rchshrk said:
    My current financial situation is I have approx 15k outstanding on personal loans and around 10k of credit cards between me and my wife. Because of this our credit isn't great (it's not bad it's just we have a fairly high debt to income ratio). We recently came into some money 50k and area looking at buying our first house. Although we have high debt we are not in arrears from the view point of securing a mortgage are we best off saving the bulk of the 50k for a deposit or completely clearing our debts and having a 20-25k deposit bearing in mind with our debts cleared we will be able to save a fair bit of additional cash and we are not looking to buy until my daughter leaves school next June?
    A mortgage advisor is better placed to answer you but the point you made here is the first thing that came to mind - the money you will not be spending paying off the debts + interest is what you could be investing in a savings account (LISA if you're FTBers?); if I were in your position, I'd definitely spend the 25K clearing all the debts, then live frugally, putting all the money you would have put into debt repayments into your savings.
    This is definitely what I would do if in your position 
    MFW 2025 #50: £1139.75/£6000

    12/06/25: Mortgage: £65,000.00
    07/03/25: Mortgage: £67,000.00
    18/01/25: Mortgage: £68,500.14
    27/12/24: Mortgage: £69,278.38 

    27/12/24: Debt: £0 🥳😁
    27/12/24: Savings: £12,000

    07/03/25: Savings: £16,500

  • kingstreet
    kingstreet Posts: 39,265 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Photogenic
    If you are income/affordability rich, keep the higher deposit and lower loan to value.
    If you are income/affordability poor repay some/all of the credit to improve your borrowing potential.
    Above all, get professional advice before doing anything.
    I am a mortgage broker. You should note that this site doesn't check my status as a Mortgage Adviser, so you need to take my word for it. This signature is here as I follow MSE's Mortgage Adviser Code of Conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice. Please do not send PMs asking for one-to-one-advice, or representation.
  • It’s not about more deposit or savings to secure the mortgage. It’s down to the fact that how much you earn, what’s your price bracket for property that you are buying and then you need to check your LTV and decide how much deposit you would need and place yourself accordingly.

    It’s possible that you can keep all your existing debt if you suffice the requirement of meeting the required LTV and affordability.
  • enthusiasticsaver
    enthusiasticsaver Posts: 16,062 Ambassador
    Part of the Furniture 10,000 Posts Photogenic Name Dropper
    Rchshrk said:
    My current financial situation is I have approx 15k outstanding on personal loans and around 10k of credit cards between me and my wife. Because of this our credit isn't great (it's not bad it's just we have a fairly high debt to income ratio). We recently came into some money 50k and area looking at buying our first house. Although we have high debt we are not in arrears from the view point of securing a mortgage are we best off saving the bulk of the 50k for a deposit or completely clearing our debts and having a 20-25k deposit bearing in mind with our debts cleared we will be able to save a fair bit of additional cash and we are not looking to buy until my daughter leaves school next June?
    I would always choose to repay the debt before applying for a mortgage as they will reduce the amount you are able to borrow anyway if you do not clear it first.  Are you paying interest on the debt? If you are not looking to buy until June then presumably you could repay the debts and divert the monthly repayments back to savings so it would build up somewhat in 6 months?  What are prices like in your area for the sort of house you want and what LTV will you need? What is your income? 
    I’m a Forum Ambassador and I support the Forum Team on the Debt free Wannabe, Budgeting and Banking and Savings and Investment boards. If you need any help on these boards, do let me know. Please note that Ambassadors are not moderators. Any posts you spot in breach of the Forum Rules should be reported via the report button, or by emailing forumteam@moneysavingexpert.com. All views are my own and not the official line of MoneySavingExpert.

    The 365 Day 1p Challenge 2025 #1 £667.95/£301.35
    Save £12k in 2025 #1 £12000/£8000
Meet your Ambassadors

🚀 Getting Started

Hi new member!

Our Getting Started Guide will help you get the most out of the Forum

Categories

  • All Categories
  • 351.1K Banking & Borrowing
  • 253.2K Reduce Debt & Boost Income
  • 453.6K Spending & Discounts
  • 244.1K Work, Benefits & Business
  • 599.1K Mortgages, Homes & Bills
  • 177K Life & Family
  • 257.5K Travel & Transport
  • 1.5M Hobbies & Leisure
  • 16.1K Discuss & Feedback
  • 37.6K Read-Only Boards

Is this how you want to be seen?

We see you are using a default avatar. It takes only a few seconds to pick a picture.