Remortgage looming, how much extra debt can I take on?

gazzaman28

My mortgage renewal is due late summer 2023, approximately 1 year away yet. I've currently got a number of 0% short term credit cards, along with 3.9%/4.9% slightly longer term deals on cards too, mostly done as part of a large and expensive (now completed) driveway building project, which should at the very least add the same amount I paid out onto the house valuation. The credit cards are getting regularly paid off thanks to a decent monthly return from the spare room I rent out through Airbnb, but that money is obviously not guaranteed in the way my salary is, so it's difficult to know how seriously it would be taken when applying for things such as a mortgage. I estimate that by the time the mortgage renewal is due I should owe around £5k. I'd also be open if possible to shifting that debt onto the mortgage if that was doable just to free up monthly expenditure.
I'm currently wondering if I should pay a bit less on the credit cards and commit some monthly outgoings (£100-200) to some interest free loans available from the Scottish government (via Home Energy Scotland/Energy Saving Trust) to get solar panels and battery storage, which will obviously pay themselves back very quickly due to the current high cost of electricity. My worry is that adding additional credit, no matter how low the interest, will look bad when it comes to renewing the mortgage.

The other thing I'd wondered about was taking the 1% hit once I've got less than a year left on my current mortgage and applying for an earlier renewal as a gamble that interest rates will be higher in a year's time. Do you think it's worth speaking to my current lender about that too?

My current finances are roughly as follows:

Income - salary: £1600/month
Income - airbnb: between £300-£800/month (depending on the time of year)

Expenditure - mortgage £367/month
Expenditure - car HP £240/month
Expenditure - credit cards £450/month (varies depending on how much airbnb income we get)
Expenditure - into savings £0-£250/month (varies depending on how much airbnb income we get)

House valuation: £101k (probably more like £110k once driveway is taken into consideration).
Mortgage owed currently: £64k (possibly down to £60k in 12 months time?)
Credit card debt: £8900 (should be down to £5k in 12 months time)
Car HP owed: £5800 (should be down to £3200 in 12 months time)
Savings: £1200

Thanks in advance for your help & advice.

K_S

@gazzaman28 From a lender affordability point of view - to get a rough idea of how much impact (if any) the background debt has on your borrowing capacity, just play around with a couple of mainstream lender affordability calculators like this
https://www.nationwide-intermediary.co.uk/calculators/affordability-calculator
https://online.accordmortgages.com/public/mortgages/quick_enquiry.do

From a lender 'credit-score' (nothing to do with your Experian/Equifax/Transunion credit score) and criteria point of view - the level of debt in comparison to your income may play a role which won't be captured in the affordability calculators above. From your post it looks like <10k non-mortgage debt and 20k salary income which I wouldn't expect to create any material issues at 60-70% LTV.

gazzaman28

@K_S thanks, I'll have a play with those calculators.

Incidentally, does is make a difference to them if part of that debt is going to be taken on as additional mortgage borrowing to pay off the credit card borrowing? I've often wondered about that when checking eligibility for a loan to pay off other debts, are they wondering if I can afford both or do they understand that one will pay off the other?

K_S

gazzaman28 said:

@K_S thanks, I'll have a play with those calculators.

Incidentally, does is make a difference to them if part of that debt is going to be taken on as additional mortgage borrowing to pay off the credit card borrowing? I've often wondered about that when checking eligibility for a loan to pay off other debts, are they wondering if I can afford both or do they understand that one will pay off the other?

@gazzaman28 Yes, it can potentially make a difference if the unsecured debt is being consolidated on to the mortgage. What difference it may make will depend on the specific lender. For example, if it's a debt con remortgage when the debt will be paid off by funds raised in the remortgage, some lenders will consider the debt as ongoing for the purpose of calculating affordability, some will do so depending on what the LTV, etc. Again, given the limited info in your post, it should not be a huge issue either way in your particular scenario but that's just a general statement.