Improving my mortgage affordability by combining debts into one loan

Jb1990bo

Hi all

Currently coming to the end of our fixed deal on our mortgage. We’re possibly looking at moving house as we have had our house valued and seems to have made us a decent profit in the two years we have owned it. We want to move somewhere closer to my partners family which is also closer to both our workplaces too so we will save a bit of money there on fuel and wear and tear costs. Another reason for moving is to have a better garden for our young daughter as the one in our current property isn’t the most child friendly. We have a few outgoings at the minute which I would look into putting into a loan so we have one single payment for them all and in turn it will give us more affordability for the new place as the house prices are slightly more expensive where we’re looking at moving. What I would like to know is if I was to do this before moving (whether or not it’s the best idea to most of you is not what I’m after) how long would you wait until putting the house on the market etc? 6 months or so? 

I don’t mind going onto the standard variable rate for a short period as it won’t change our mortgage payments too drastically. I currently have my loan with Nationwide and with the soft quote, which has always been accurate for me in the past the rate of the loan will be 2.9%. If I was to do this we’d save on interest on my partners car finance too. 

The only other way around the affordability for us would be to take some equity from our house sale and pay off some of the bills that way. I’m thinking the interest in doing that would be more than the 2.9% loan over a shorter period so I am rather reluctant to do that. If I had to do that, is it something you can do? As in say I had x amount left on a loan or credit card, can you tell the new mortgage company that it’ll be paid off with the equity released and they’d be happy with that or does it need to be done before you apply for that mortgage?

Thanks

JB

K_S

Jb1990bo said:

As in say I had x amount left on a loan or credit card, can you tell the new mortgage company that it’ll be paid off with the equity released and they’d be happy with that or does it need to be done before you apply for that mortgage?

@jb1990bo Depends on the lender, how close you are to your affordability cieling, the size of the debt and the LTV you're applying at. But generally speaking, you should be able to find a lender who is willing to calculate affordability based on debt to be paid off with equity from sale.

Jb1990bo

Thanks for the reply @K_S

Would you recommend to use the equity to pay off bills or combine them into a loan and wait 6 months? We’d be £20-40k under ceiling depending on the method we use to increase affordability. 

The_Real_Cheddar_Bob

I'd consult a mortgage advisor/IFA. They will be able to work something out by the sounds of it. 

K_S

Jb1990bo said:

Thanks for the reply @K_S

Would you recommend to use the equity to pay off bills or combine them into a loan and wait 6 months? We’d be £20-40k under ceiling depending on the method we use to increase affordability. 

@jb1990bo Sorry I'm not entirely clear what you mean by "bills" in your post above in the context of consolidating them into a loan.

enthusiasticsaver

Any lender calculating affordability will take the position at the time of application so you cannot use the equity to repay debt as it is not available to you until after the property is sold.  

I would not take a loan out just before applying for a new mortgage.  Can you not repay the debt before moving? 

Jb1990bo

@K_S it would be what’s left on my loan, my partners car finance and a credit card that’s currently interest free that I had to put our new boiler on before Christmas. 

My partner also has a credit card and if we were just to pay them off say with the equity, that would give us enough affordability for the new house. 

Jb1990bo

Jb1990bo said:

@K_S it would be what’s left on my loan, my partners car finance and a credit card that’s currently interest free that I had to put our new boiler on before Christmas. 

My partner also has a credit card and if we were just to pay them off say with the equity, that would give us enough affordability for the new house. 

The last part would be just paying off the credit cards with equity. That would give us enough affordability. 

Jb1990bo

enthusiasticsaver said:

Any lender calculating affordability will take the position at the time of application so you cannot use the equity to repay debt as it is not available to you until after the property is sold.  

I would not take a loan out just before applying for a new mortgage.  Can you not repay the debt before moving? 

@ent@enthusiasticsaver that’s what I was wanting to know. But no we won’t be able to clear the debt in that time. If I was to take a loan out I would wait at least 6 months before putting our house on the market and applying for a new mortgage. We’ll be out of our deal by then and won’t be costing us too much more than it is now and the loan would more than offset that. We are happy where we are now but just trying to plan what to do for the future as my partner would like to move closer to her family. 

Jb1990bo

enthusiasticsaver said:

Any lender calculating affordability will take the position at the time of application so you cannot use the equity to repay debt as it is not available to you until after the property is sold.  

I would not take a loan out just before applying for a new mortgage.  Can you not repay the debt before moving? 

@enthusiasticsaver that’s what I was wanting to know. But no we won’t be able to clear the debt in that time. If I was to take a loan out I would wait at least 6 months before putting our house on the market and applying for a new mortgage. We’ll be out of our deal by then and won’t be costing us too much more than it is now and the loan would more than offset that. We are happy where we are now but just trying to plan what to do for the future as my partner would like to move closer to her family. 

K_S

enthusiasticsaver said:

Any lender calculating affordability will take the position at the time of application so you cannot use the equity to repay debt as it is not available to you until after the property is sold.  
I would not take a loan out just before applying for a new mortgage.  Can you not repay the debt before moving?

@enthusiasticsaver That is incorrect. It depends on the lender. There are mainstream lenders who will calculate affordability based on debt at completion. If the numbers are big, the plausibility of that will be checked at underwriting.

I recently placed a homemover case where the applicant had unsecured debt that comfortably exceeded their income (and thereby significantly impacted their affordability as per lender calcs) and wanted to clear most of at using equity from sale. It just needs the right lender and obviously depends on the rest of the scenario as well.