Applying for mortgage when car PCP coming to an end

pjw1592

Hi all!

My PCP car contract comes to an end in April, and I need to either get a new car, or refinance the balloon payment.

I am also very actively looking to buy a property at the moment, after the one I was originally buying fell through. I’m concerned that refinancing or getting into another PCP contract might prevent me from getting a mortgage. Is this the case? If I were to get a new PCP plan now, would this prevent me from applying for a mortgage in, say, 3-4 months time?

Many thanks for your wisdom! 

Grumpy_chap

pjw1592 said:

Hi all!

My PCP car contract comes to an end in April, and I need to either get a new car, or refinance the balloon payment.

I am also very actively looking to buy a property at the moment, after the one I was originally buying fell through. I’m concerned that refinancing or getting into another PCP contract might prevent me from getting a mortgage. Is this the case? If I were to get a new PCP plan now, would this prevent me from applying for a mortgage in, say, 3-4 months time?

Many thanks for your wisdom! 

Any new finance you take will impact your ability to get a mortgage:

1. Any money spent on a deposit is not available to use towards the house purchase, either directly or in the various associated costs.  You will have a far more comfortable process if you are able to retain that money available for unforeseen costs above the planned budget.  There will be many such costs in the process of buying a property.

2. How would you feel if the extra £1k spent on a nicer car was the difference between securing the house you want or not clinching the deal?

3. How would you feel if the extra £1k spent on a nicer car is the difference between a LTV percentage threshold where you could have got into a slightly more preferable interest rate band?

4.  Any other borrowing you have when applying for a mortgage will impact your affordability.

Have you considered not getting a new car?  I don't mean to take this to the extreme of having no car (though you could weigh up that option), but to let the current PCP car (presumably 3 or 4 years old) go and then buy a cheap car that will simply do the job?  This might give you all more flexibility and buying power when getting a property then, in a year's time once you are settled, you can reassess your budget based on the known costs of the property and look to get into a newer / nicer car at that time.

Finally, do remember to consider all your options with regard to the current PCP car when the agreement comes to an end.
 - You can simply give the car back
 - You can pay the balloon and keep the car
 - You can sell the car to a higher bidder than the manufacturer's Dealer, settle the finance and keep the excess.  Given the strong used car values this may be beneficial - you might even clear enough to buy another (old) car cash.  Use WBAC, Motorway, Arnold Clark, etc to get initial indications on the value to sell the car versus finance.

aoleks

Refinancing the balloon payment should, IF you did everything right, be much cheaper than the monthly payment on your car. That means a small boost to affordability.

do you have a broker? I can’t see it being a problem if everything else is ok.

pjw1592

Hi guys! Thank you for your responses! These were really helpful.

I do indeed have a broker - I will check with him. I did a calculation online last night, and if I were to refinance my current car with a 10k loan, I’d actually be £150/month better off, which was a surprise!

thank you for your replies once again! They’ve given me real food for thought! 😀

bubby08

Hello I know this is an old topic It is relevant to me. I have an appointment with a MA next week and I am in the same situation as the OP. 

From affordability aspect I am fortunate that I can afford it but I am just trying to gauge how much a new PCP will affect my lending power for a remortgage. Does an underwriter consider the remaining balance of the total PCP agreement including interest and fees or do they just consider the total amount of monthly payments in the agreement. 

Thank you 

dimbo61

The car buying and leasing market has changed a lot over the last 18 months due to a shortage of new cars, rising prices of second hand cars and Interest rates.
You may find buying the leased vehicle and then selling it gives you a profit rather than handing back the keys.
A new motor may cost much more each month !
Manufacturers are building more expensive motors to make more profit and going up market Hence no new fiestas or KA.

bubby08

@dimbo61 Great post. Thank you. This is my plan. But due to the age of the vehicle once I complete the balloon I will still sell it. But this means I will need a new vehicle.  But looking at the lower end of the market the options are terrible so I’m not sure spending a couple of thousand on vehicle and owning outright is the right option for me now. That why I was looking to find out exactly how mortgage advisors deal with PCP.

dimbo61

It's the lenders you need to be concerned about not the mortgage brokers.
What view do they take to you having  a pcp  deal of say £500 a month for a nice motor ?
Could you hold off till you have the keys to your new home