Getting a mortgage with debt

EsElDee

Sorry if this is not in the right place, please do let me know and will be happy to move.

My partner and I have recently separated and are selling our jointly owned home. I currently have around £25k of personal debt which I will be able to clear with the equity from the house and be able to have some leftover for a deposit to buy.

I am looking for advice about how I can go about obtaining a mortgage whilst I have this debt even though it will be cleared as part of the sale of our current property. Does anyone have any experience in this area? My credit rating is high as despite the amount of debt I over pay and have always kept up to date with payments, it's just the amount that I think may be an issue!

Any advise greatly appreciated. 

GentleGiant01

Hello!

I am not a mortgage broker and I am certain those on this board will weight in shortly - but from experience it all depends on the numbers, the lender, and how good your broker is. If you earn 25k per year with 25k debt, that is going to be tricky. If you earn 100k per year, then theoretically no problems so long as affordability is there.

Some lenders will give an offer and stipulate that the offer is subject to you sending them statements to prove the debts have been cleared, but in reality, there is very little they can do once the keys are in your hand!

If you can provide approx figures of income, deposit and budget, I am certain one of the accredited brokers can give you a rough guide but ultimately speaking with a whole of mortgage broker who can go through everything will give you the most accurate answer. Good luck

K_S

@eseldee What impact (if any) the background debt has on your application will depend (generally speaking) on the following factors -

- specific lender policy (some lenders will consider the debt as ongoing for the purpose of affordability, others will ignore it as it will be repaid from equity)

- LTV (lower the LTV the more likely it is that the lender's policy will be to ignore the debt that will be repaid from equity)

- how much you're looking to borrow (if it's well within affordability, then the 25k debt may not matter either way)

There are other minor ways in which the debt may impact your chances, but these are the main ones.

If you are looking to maximise borrowing, it would be worth considering using a broker to get a realistic idea of how much you can borrow. The MSE guidance here tells you how to find one. 
https://www.moneysavingexpert.com/mortgages/best-mortgages-cashback/#step3

user1977

I'm not sure if the other replies are assuming that you'll still have debt - but if you're clearing the existing borrowing before (or simultaneously with) completion of your purchase, I don't see the relevance? The mortgage lender will only want to know about your ongoing commitments - loans which you've already paid off don't come into it (other than reducing the amount of equity you'll have available for the purchase).

EsElDee

Thank you all for your super quick responses, wow! For additional background I currently earn £55k + 5% bonus. I will have no debt (except the mortgage!) once the sale completes and the existing ones have been cleared. I'll have roughly £30k as a deposit and looking at properties up to £275k.
Thank you again!

K_S

user1977 said:

I'm not sure if the other replies are assuming that you'll still have debt - but if you're clearing the existing borrowing before (or simultaneously with) completion of your purchase, I don't see the relevance? The mortgage lender will only want to know about your ongoing commitments - loans which you've already paid off don't come into it (other than reducing the amount of equity you'll have available for the purchase).

@user1977 That is a common assumption but unfortunately not always the case, as some lenders will ignore debt to be paid off only below a certain LTV.

Some will 'remodel' affordability if debt is above a certain level or the application is below a certain lender 'credit-scoring' threshold, etc.

I guess the aim is to some extent factor in the possibility that the borrower will not repay the debt as declared.

It used to be more lenient pre-covid, but hasn't gone back there yet.

K_S

EsElDee said:

Thank you all for your super quick responses, wow! For additional background I currently earn £55k + 5% bonus. I will have no debt (except the mortgage!) once the sale completes and the existing ones have been cleared. I'll have roughly £30k as a deposit and looking at properties up to £275k.
Thank you again!

@eseldee 90% LTV, looking to borrow inside 4.5x, background debt reasonable compared to income, no other credit issues, you should have a decent choice of mainstream lenders, I wouldn't expect any significant issues.

EsElDee

K_S said:

EsElDee said:

Thank you all for your super quick responses, wow! For additional background I currently earn £55k + 5% bonus. I will have no debt (except the mortgage!) once the sale completes and the existing ones have been cleared. I'll have roughly £30k as a deposit and looking at properties up to £275k.
Thank you again!

@eseldee 90% LTV, looking to borrow inside 4.5x, background debt reasonable compared to income, no other credit issues, you should have a decent choice of mainstream lenders, I wouldn't expect any significant issues.

This is really encouraging, thank you. I had pretty much written off buying straightaway because of the debt but will certainly explore this more 😊👍🏻