Affects of PCP agreement on future lending

bubby08

Hello,

I was wondering if someone in layman’s terms could breakdown how a PCP for a vehicle would affect my lending power for example I am not sure if
A) Is the full value of the pcp agreement ( car price + interest) looked at as debt?
B ) Is it just the vehicle price that sits on credit file as debt?
C) Is it the loan amount not including the balloon payment as technically speaking that is not a payment you have to make?
D) Or is it specifically just the monthly replayed which is factored into lending decisions!

The context of this is in relation to a re-mortgage or second mortgage for a buy to let.


thank you in advance

Herzlos

Credit report agencies will see the outstanding debt - balloon + (monthlies x months).

You still owe the balloon payment until the car is returned, so whilst it's "optional" it's still a debt. You're just not paying off any capital on it over the term.

bubby08

Thank you Herzlos,

So to be clear, it is your opinion that if by a car using PCP for say £50,000 that lenders such as mortgage providers will consider the full amount of the PCP Plus the interest and inclusive of the balloon payment, so let’s say total figure £68,000 as long term debt and would deduct that figure whatever you could potentially lend for a mortgage?

best regards 

Grumpy_chap

If you are considering a new car and also a mortgage / re-mortgage / BTL, can you alter the order of events so that the mortgage is resolved first and then the car?

Any loan will impact the maximum you can secure for further borrowing and £50k is quite a high value car so means a large loan  value associated with that.  Would you want having that car to prevent you achieving the mortgage goals, either by the impact on total mortgage available or by using the extra bit of deposit that would have got you the property you desire.

If you are considering BTL, you will need 25% deposit (usually) so don't want to have used that up on the car.

If you need to borrow for a car, can you really afford the BTL?

bubby08

Thanks grumpy chap. So form what you saying the full value of the loan will be calculated as debt and deducted from the amount any potential mortgage advisor will lend as well was the monthly payment? 

Well that’s a good question I guess it’s personally choice whether or not you want to pay cash or keep the cash under the mattress and pay a premium for the finance. 

Thank you I didn’t realise the minimum the deposit for a BTL was 25% my plan was to remortgage and use the equity for a BTL.

Thank you for your guidance

Grumpy_chap

bubby08 said:

So form what you saying the full value of the loan will be calculated as debt and deducted from the amount any potential mortgage advisor will lend as well was the monthly payment? 

Not exactly.
Any debt will impact the level of further debt that you can secure.
It is juts that mortgages are more involved in the assessment of affordability than most consumer debt, so it can be different from a straight forward pound-for-pound assessment.

bubby08

Right ok.  So not as straight forward as not like the debt level they will consider multiple factors like affordability property value etc?

Thank you

Nebulous2

bubby08 said:

Right ok.  So not as straight forward as not like the debt level they will consider multiple factors like affordability property value etc?

Thank you

The algorithms used by lenders are complicated and not shared openly. They have to be or people would game them. 

I borrowed over £30k on credit cards to stooze, not expecting to need any credit. I then decided to buy a holiday house. I went to Nationwide to ask what I could borrow and was told my maximum with £30k debt, £20k debt and £10k debt. Each £10k debt knocked over £30k off my maximum mortgage. I repaid over £20k of credit and got the loan I needed. 

Now I see two potential issues for you.

If the £50k is in a car then it isn't as easy to reduce it as it was for me taking it out of savings, if they say that is what you need to do.

Also, if the same formula applies, it could knock £150k off how much you could get in a mortgage. You would need to be a high earner to get both the car loan and a decent BTL mortgage. 

bubby08

Thanks Nebulous very helpful.

MrFrugalFever

bubby08 said:

Thank you Herzlos,

So to be clear, it is your opinion that if by a car using PCP for say £50,000 that lenders such as mortgage providers will consider the full amount of the PCP Plus the interest and inclusive of the balloon payment, so let’s say total figure £68,000 as long term debt and would deduct that figure whatever you could potentially lend for a mortgage?

best regards 

Correct, with the exception to the highlighted bit as the mortgage lenders will all have their own views and criteria to follow.

Herzlos

bubby08 said:

Thank you Herzlos,

So to be clear, it is your opinion that if by a car using PCP for say £50,000 that lenders such as mortgage providers will consider the full amount of the PCP Plus the interest and inclusive of the balloon payment, so let’s say total figure £68,000 as long term debt and would deduct that figure whatever you could potentially lend for a mortgage?

best regards 

It'd deduct the full £68k from the max amount you could borrow, and the repayments on it will be factored into your affordability checks, since you're going to be paying out something like £700/month for the car that money won't be available for mortgage payments.