Paying off credit cards/credit score

Sporty3

Hi Folks
Wondering if anyone knows how paying off all credit cards in full before applying for a mortgage will work? I owe approx £27k in card debt ( as a result of divorce) and have £25k from sale of asset in divorce. Main aim is to get family home remortgaged in my sole name and I've been told I should have minimum card debt to ensure I get remortgage amount needed..anyone any tips on best way to pay off cards..whether or not some card debt might be ok, whether or not card companies would accept a reduced sum for full payment of debts..Thanks in advance. 

Sandtree

It might be ok, depends on your income -v- existing debt -v- mortgage amount... if you have a very high income and low mortgage amount you could probably have a sizeable amount of other debt and the lender consider its still affordable for you. Obviously if your more borderline then you want to do everything you can to tip it in your favour

Lenders will typically only consider reduced sums once you have defaulted on the debt... if you are paying on time each time then they wont. If you aren't paying on time and have defaulted your mortgage may be difficult to secure. In most cases such settlements are "partial and final" settlements and get reported as such to the credit reference agencies which is a major red flag to any future potential lender

Sporty3

Thanks so  much @Sandtree...I earn £28k, need to borrow £123k in total: Existing mortgage balance of £90k,and buy out ex £33k = £123k, I've never defaulted on mortgage or card repayments, have 3 dependent children and loan to value on house is good, house valued at £275k. Is using all £25k from asset sale to clear all debts good idea, and what criteria do mortgage lenders apply? Really appreciate any advice..

[Deleted User]

Head to the mortgages board. 123k looks tight on your income, especially with the amount of debt you're carrying. 

Lenders will take a % of your debt as a monthly commitment when looking at affordability, so it may not be the best thing to clear it all (although it would save you money, assuming the balance is interest bearing).
 

Sporty3

Thanks @[Deleted User]...this information is really helpful, it's a worrying time trying to make an informed decision on the next best move to get remortgaged. I'll try mortgages board too. ...Did you mean it might be the best thing to clear the all the card debt ...or might not be the best thing to clear it all? 

[Deleted User]

It depends on the lender. If you clear it, you save money and can borrow more as you no longer have the outgoing. But on the flip side, you now need to borrow more as you've spent a chunk of cash.

On the flip side, keeping the debt means you'll be able to borrow less, but how much less will depend on the how the lender treats the debt and is unlikely to be the full amount.  However, it means having to continue to service the debt.

[Deleted User]

Could be worth paying down any interest bearing / big debt and try and get a 0% BT card to allow you to pay some off over longer while still having some money free for emergencies? 

Thrugelmir

Paying down the debt obviously saves you a considerable amount of interest. 

Is there a necessity to remortgage the property into your name immediately. Is this the basis of the legal greement that's been drawn up.

Have you factored maintenance into your annual income? 

Nebulous2

Are you using a broker? They should be able to advise. 

I took out over £30k in credit card debt about 5 years ago to stooze, with no expectation to need additional credit.  We then decided to buy a holiday home, and I went into a Nationwide branch at lunchtime to discuss. The mortgage adviser wasn't available but another member of staff saw me and ran some figures, which was really helpful. Basically each £10k in debt lowered the sum I could borrow by £40k. They wanted the debt decreased to under £10k to lend me what I wanted.

He also told me after repaying it to wait until it had gone from my credit report before applying. A discrepancy between what I declared and the information they received from the credit reference agency meant an automatic decline, and the necessity to appeal the decision. I followed the advice given and it went very smoothly. 

That sort of information about a lender is invaluable, to let you know what you need to do, or indeed whether it is possible. 

martinbainbridge1975

I would certainly sound out a mortgage broker as nebolous2 states above, they will have a good idea what your options maybe, together with lender criteria.  Added to this they wont be tied to one lender and have a panel to choose from

if you pay the full 25k off then that's a considerable reduction in what you will likely be paying out on the cards at the moment.