Save for deposit or reduce debt - Advise please on my situation as it's not clear

MaryNB

Don't forget to allow another approx £2,500 for conveyancing, survey, and mortgage valuation fees. If you have a lot of furniture in your rental you might have to factor in the cost of movers. Also not wise to use every penny you have, you should have some money set aside for emergencies. 

K_S

@ultima1 Comments limited to your potential mortgage -

- You say you have already got an AIP at 95% LTV for the amount your require. Assuming it has been keyed in correctly, that is a good sign that the current debt levels aren't necessarily stopping you from borrowing what you need.

- What is stopping you appears to be that you don't have a 5% deposit yet. So, using your current cash savings to pay off debt will delay that further.

- Turning 48 next year gives you a max term of 22 years with most lenders and 27 years with a few, based only on employed income.

As mentioned by a poster above, you don't need to do AIPs to know how much you may be able to borrow. Try playing around with a couple of lender calculators to get a very very general idea of your affordability (as per lenders).

https://www.nationwide-intermediary.co.uk/calculators/affordability-calculator

https://www.halifax-intermediaries.co.uk/tools_and_calculators/mortgage_affordability_calculator/default.aspx

letsbetfair

You'd need to check with a broker whether you'd have any mortgage options, but at best you'll be pushing the limits of what is available and left with limited choice (and paying more on the mortgage). I'd pay off the debt asap and then look to save again.

One thing to consider (only if you'll have the discipline to pay it back and not to use it to spend more than you otherwise would) is getting a credit card with a 1yr-plus interest free period. You could use this for your daily spending, pay back the minimum on the card each month, and put the rest of the card balance towards overpaying your loans... Won't make a massive difference, but could save you a few £s in interest 

lonibra

OP - Only pay off the debt IF YOU ARE HAPPY with delaying the mortgage until you can replenish your savings back to the minimum 5% required.

There is no guarantee that 5% deposit mortgages will be available at that point for you so keep that in mind as well.

Speak to an MB and get a clear idea of how much you can borrow right now with 10k savings. If that meets your needs, then weigh up whether you want to buy now (and keep the debt) or repay the debt and postpone your plans to buy a house.

The interest rates on your loans are quite reasonable (perhaps even lower than what you would pay on a 95% LTV mortgage) and any savings could easily be dwarfed by the costs of renting for another 1-2 years before buying.

Ultima1

Thank you everyone for your comments so far, I really appreciate it!

steampowered

pinkshoes said:

I agree with @AdrianC that your debt and savings are NOT two separate pots, but just ONE pot.

So in reality you owe over £10k and have no savings whatsoever. 

This is actually not true. I just played around with Halifax's calculator.

The amount which Halifax is willing to lend to someone earning a salary of £40k with debt of £17k (like the Op) is £115.5k. 

The amount which Halifax is willing to lend to someone with less than a 5% deposit is £0.

So, it is possible for the Op to get a mortgage with their debt as it is. But it will be impossible to get a mortgage if the Op uses their savings to clear that debt.

To be clear, Halifax would have lent up to £190k if the Op had no debt, so by repaying debt the Op will increase their affordability, BUT ONLY if they still have enough for the deposit. 

Ultima1

lonibra said:

OP - Only pay off the debt IF YOU ARE HAPPY with delaying the mortgage until you can replenish your savings back to the minimum 5% required.

There is no guarantee that 5% deposit mortgages will be available at that point for you so keep that in mind as well.

Speak to an MB and get a clear idea of how much you can borrow right now with 10k savings. If that meets your needs, then weigh up whether you want to buy now (and keep the debt) or repay the debt and postpone your plans to buy a house.

The interest rates on your loans are quite reasonable (perhaps even lower than what you would pay on a 95% LTV mortgage) and any savings could easily be dwarfed by the costs of renting for another 1-2 years before buying.

Yes, my current rent is £700 pcm.

mcpitman

We bought 5 years ago with similar debt and income to the OP and a 5% deposit. (although i was 37 then).

It's not impossible, I don't regret buying at the time we did.

We chose to buy at that time rather than clear debt due to the opportunity presented, had we not had a separate "pot" of savings, we wouldn't have had the "fluidity" in our finance to make that decision.

In hindsight the best decision we made, for us, in our circumstances.

Appreciate top money saving advice is pay off all debt, save then buy.