High credit card utilisation following house build

JJPA

Ok, long story short, for the last 18 months or so my wife and I have been building our new home from scratch. Architecturally speaking, it’s not quite at the level of your average episode of Grand Designs, but just as those episodes typically play out, the project has been fraught with unexpected issues - and costs.

Due to the complex nature of the build itself, we were only able to mortgage a small percentage of the overall cost (land and build) - we’ve had to fund a significant chunk with personal savings and the proceeds from the sale of our previous home (and yes, in true Grand Designs style, we did spend 6 months of the project living in my father in law’s caravan!).

As cash flow got really tight towards the back end of the project, I resorted to credit cards to get things finished - just shy of £40k in total. My thinking was, once we have a complete house, we can apply for a mortgage advance (since we have around 70% equity now) and pay off those debts.

What I hadn’t considered was the impact virtually 100% credit card utilisation would have on my credit rating and therefore to add to our borrowing in the near term. In fairness, credit scores weren’t front and mind in my world of stress the last few weeks, but it’s a definite oversight on my part in the cold light of day.

In a nutshell, this high credit card utilisation is preventing us from obtaining the mortgage advance we are looking for to pay off those debts, so rather than a comparatively low interest repayment structure, we are left with the more aggressive interest rates that are part and parcel of credit cards.

Is there a way out of this juxtaposition?

MorningcoffeeIV

Cut your costs and throw as much as you can at the highest rate debt 

If you can move any of the debt to a 0% BT, do that.

MattMattMattUK

JJPA said:

Ok, long story short, for the last 18 months or so my wife and I have been building our new home from scratch. Architecturally speaking, it’s not quite at the level of your average episode of Grand Designs, but just as those episodes typically play out, the project has been fraught with unexpected issues - and costs.

Due to the complex nature of the build itself, we were only able to mortgage a small percentage of the overall cost (land and build) - we’ve had to fund a significant chunk with personal savings and the proceeds from the sale of our previous home (and yes, in true Grand Designs style, we did spend 6 months of the project living in my father in law’s caravan!).

As cash flow got really tight towards the back end of the project, I resorted to credit cards to get things finished - just shy of £40k in total. My thinking was, once we have a complete house, we can apply for a mortgage advance (since we have around 70% equity now) and pay off those debts.

What I hadn’t considered was the impact virtually 100% credit card utilisation would have on my credit rating and therefore to add to our borrowing in the near term. In fairness, credit scores weren’t front and mind in my world of stress the last few weeks, but it’s a definite oversight on my part in the cold light of day.

Your credit rating/credit score is a made up number and no lender ever see it, ignore it. Lenders see your borrowing, whether you are up to date with payments, any hard searches conducted so that they can see if you are applying for more credit etc.

JJPA said:

In a nutshell, this high credit card utilisation is preventing us from obtaining the mortgage advance we are looking for to pay off those debts, so rather than a comparatively low interest repayment structure, we are left with the more aggressive interest rates that are part and parcel of credit cards.

The utilisation is not really that big a factor, again, the CRAs love to bang on about it, largely because they want to sell you another credit card (they get commission), it is somewhat of a factor, but the far bigger reason will be that you are carrying £40k of unsecured debt. Did you apply for extra borrowing direct with a mortgage lender, or via a broker? I would strongly suspect that if you go via a lender and provided you meet the overall affordability requirements that a broker would be able to secure you mortgage with the extra borrowing, there may be some hoops to jump through due to the way affordability is calculated and banks are not always that happy about debt consolidation (for most people it fails and they end up in further debt), but a broker will be able to navigate that for you, where as a direct application with a lender will almost certainly involve a refusal. 

JJPA said:

Is there a way out of this juxtaposition?

Speak to a mortgage broker, ideally an independent one who comes with real world referrals, not one of the mortgage broker companies. 

JJPA

Thanks for the helpful advice - and apologies for my slightly clumsy reference to “utilisation”. I appreciate it’s the scale of the amount, more so than the percentage in this case, that’s the issue.

Affordability is no issue; even with a further £40k added to the mortgage, the repayments are fairly small compared to income. When I spoke to my bank, it was a pass on affordability, but a fail on soft “credit scoring”. That initially surprised me as I’ve never had an issue with credit worthiness my entire life (or at least since my late teens, and that was some time ago and just a lack of history at that juncture).

It’s interesting what you say about the relative meaningless of “credit scores” per se. I have always kept a casual eye on things on Clearscore (which I believe is Equifax powered), and the bottom line number at least looks fine there. Oddly, Experian and Credit Karma paint a very different picture - and of course it’s the size of current debts that is the sole problem. I assume, regardless of the number on my screen, it’s simply this that would give my bank concerns about increasing the mortgage?

And this, I think, might be the challenge. I didn’t want to remortgage, because the rate I have is considerably more favourable than what I can get elsewhere right now; not to mention early repayment fees (which admittedly I haven’t looked into, but assume would be significant). I just wanted to tag the extra £40k onto our existing mortgage in the form of an advance, thus only paying the higher rate on the £40k and not the bulk of the mortgage.

I presume that a broker wouldn’t be helpful in this scenario? Short of looking to borrow money from family in the very short-term (which is the last resort for me), is there any other viable option?

penners324

It's likely the mortgage company see the extra mortgage as extra debt so you're paying off the extra mortgage and the credit card debt every moth.