Mortgages and Unsecured debts

fergie_

Hi all, I've been doing some searching, but I have a general query I can't find an actual answer to.

When taking out a mortgage or remortgaging, how does unsecured debt (such as loans or credit cards) affect the application? I know a lot of banks prefer to wrap it up into a secured mortgage element, but at what point do they insist on this?

Ultimately with unsecured debt, does it reduce the amount the banks are willing to lend by a set formula? Or do they look at the cost of servicing the debt? Or is it a combination of both or something else?

Edi81

£ value vs income 
converting unsecured into secured is very rarely a good idea

K_S

fergie_ said:

Hi all, I've been doing some searching, but I have a general query I can't find an actual answer to.

When taking out a mortgage or remortgaging, how does unsecured debt (such as loans or credit cards) affect the application? I know a lot of banks prefer to wrap it up into a secured mortgage element, but at what point do they insist on this?

Ultimately with unsecured debt, does it reduce the amount the banks are willing to lend by a set formula? Or do they look at the cost of servicing the debt? Or is it a combination of both or something else?

@fergie_ The general answer to your question is, with regard to maximum borrowing -

Unsecured loans: The monthly payment is what is taken as a commitment. The outstanding value does not matter for the purpose of calculating a monthly financial commitment. To take an example if you have a personal loan with a minimum monthly payment of £250, that is the commitment that goes into the lender affordability calculator.

Credit cards: Depending on the specific lender, they will take 3-5% of the outstanding amount as a commitment, even if the balance is on a 0% promotional rate. So if you have a cc balance of £10,000, it will be factored in as a monthly commitment of around £300-500 with most lenders.

Debt consolidation remortgage - I personally have never heard of lenders insisting on consolidating unsecured debt, as that would get them into trouble. With most lenders (not all), if you are doing a debt-con remo, the debt being consolidated will be treated as ongoing for the purpose of affordability.

How exactly all the above is factored in by lenders will differ based on the specific lender policy and should be captured in their individual affordability calculators.

You can play around with a couple of lender affordability calculators to see the above in action.
https://online.accordmortgages.com/public/mortgages/quick_enquiry.do
https://www.santanderforintermediaries.co.uk/calculators-and-forms/affordability/

fergie_

Thanks for that - useful to see some calculators from the lenders perspective.