Repayment of all debts on completion

nicoletia

Hi all

I need some reassurance as I have searched the Internet and feel like we may be refused the mortgage we require.

Long story short, we have a combined income of £65k, £35k worth of debt, perfect credit scores with no defaults ever and £100k equity in the house. Our little one goes to nursery full time.

Broker 1 recommended to us that we put our house on the market whilst she would sort out our mortgage in principle. She wasn’t concerned about the debt as long as we were happy to repay it on completion which is what we want to do as we want to become debt free (apart from the mortgage). We accepted an offer on our house but the broker stopped responding and we never got our mortgage in principle from her.

Broker number 2 who we subsequently instructed recommended porting instead and said that the mortgage in principle was not required. The EAs are being difficult in that they are not allowing us to view properties without the MiP in place. I’ve asked broker 2 to apply for one asap.

I’ve searched the Internet and the general consensus is that we might be unable to borrow what we want with that level of debt which is not consistent with what both brokers have advised but I haven’t got that piece of paper in my hand to confirm it. We have made an offer on the property we love (£300k) and intend to use £50k as a deposit but now I’m panicking we won’t get a conditional offer allowing us to pay off our debts on completion. 

I’m wondering if anyone has been in a similar situation as my EA is pushing for us to instruct a conveyancer and we don’t want to be liable for their legal fees if it turns out that we have to pull out from the sale due to no bank agreeing to lend us £250k?

Many thanks in advance 😊

K_S

@nicoletia 85% LTV, 250k loan size, 65k income and 35k debt to be repaid on completion. So far so good. I suspect any affordability issues for that loan size will be down to your childcare costs if your child goes to nursery full time.

But if your current broker is confident of being able to port the mortgage and get the additional borrowing you need, then they must have run it past the lender so hopefully it'll work out fine.

There's no point in instructing a solicitor until it's time to put a mortgage application in, especially if you might be changing lenders. If you wish to, you can instruct a no-completion no-fee solicitor and make sure you don't transfer any funds for searches/disbursements until you have a mortgage offer in hand.

nicoletia

Many thanks for your quick reply @K_S

Yes it eats away £700 per month but even on the assumption that we will end up with a £1100/month mortgage, and having considered the increased energy, council tax and life insurance costs, we will still be left with £1700 of disposable income. My broker seems to be very experienced and whilst I recall that he spoke with my lender about the porting, I’m not sure if any additional borrowing was discussed. Having said that, presumably he wouldn’t have advised us we would get up to £327k had he not been confident about it based on the bank statements, payslips and checkmyfile reports he had seen?

Sorry I know it sounds very panicky which is purely because we think the vendor will either agree our offer or we end up settling at say £310k.

In terms of the conveyancer, is it ok to say to the EA that we won’t instruct until we have a mortgage offer? I’m conscious that sometimes it takes ages to find a property and then have offers accepted particularly in the current t climate.

Thank you again.

Thrugelmir

With £35k of accumulated debt , forget your perfect scores. What matters is the perception that any potential lender has of how you manage your personal finances. Consolidating debt maybe a solution but isn't the answer to the underlying issues. As in moving house you'll also be using equity to fund the cost of the move including stamp duty etc. 

nicoletia

Thanks @Thrugelmir. The debt is there mainly because we originally bought a fixer upper and needed money to renovate. We also bought a car on finance 2 years ago. Once the debt is cleared, we’ll be better off as we will only be paying a little bit more for our mortgage and hopefully end up in a much bigger house.

I have factored in the stamp duty and all other fees which will come off the £100k equity 😊

K_S

@nicoletia Tbh, if it's only £700/month and no other significant debt to remain after completion in the background, 250k of borrowing should be comfortably achievable with the right lender (one that will ignore debt to be repaid on completion), based on the limited info in your post. So I wouldn't worry too much on that front.

With regard to the solicitor, your broker will ask for solicitor details when it's time to put in a full application and as I mentioned you can do it risk-free anyways.

It isn't clear whether you have an offer accepted or not. If yes, then it's reasonable for the EA/vendor to expect that you get a move on with the mortgage app. If not, it's far too early to instruct a solicitor. In either case, I would try to keep the EA on side (within reason) purely because (in most cases) there's a surplus of buyers for good properties.

nicoletia

Thank you again @K_S. 

Yes, there will be nothing else outstanding debt wise and the only sizeable expense will be the nursery fees.

Amazing, I will speak with my EA tomorrow and ask them to manage the buyer’s expectations. Our offer has not been accepted yet but we are feeling  positive about it 🤞

Thrugelmir

nicoletia said:

Thanks @Thrugelmir. The debt is there mainly because we originally bought a fixer upper and needed money to renovate. We also bought a car on finance 2 years ago. Once the debt is cleared, we’ll be better off as we will only be paying a little bit more for our mortgage and hopefully end up in a much bigger house.

A little bit more over many months mounts up. Financing a car over 20 plus years makes little sense. As no doubt it will be need to replaced well before the debt is repaid. Interest rates are only heading one way at the moment. That's upwards.