Loan offers reduced from £25k to £7k

BrianW2022
BrianW2022 Posts: 9
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Hi,
   I am in the process of getting a mortgage with my partner and the bank we are using accepts loans as the deposit as we don't have enough saved yet.
The issue I am facing is for the last few months I have been checking for loan rates and loan offers as I need to borrow £13k and the offers have been great so far and our affordability is good. However I checked today and suddenly the best offer I can get is £7k from my bank and searches on money supermarket come back with 1 offer at a very high rate with only 50% chance of getting it. 
Nothing has changed on my credit report for months. Only thing I can think of is I had credit card debt of around £4400 across a few cards. I got a new card with a 0% offer for 26 months of £4500 and transferred the debt to it.
As this puts me close to the limit is this what has messed up the loan offers? If this is the case and I transferred half of it to another 0% card I have would this fix the problem?

Any insight would be grateful. 
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  • Emmia
    Emmia Posts: 2,961
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    edited 21 January at 6:47AM
    To be honest, I think you need to reduce/eliminate the credit card debt you're already carrying before looking to borrow even more on a mortgage.

    When you transferred the card balances to the 0% card did you also close the other credit cards down? If not what you've effectively done is risk a doubling of your debt if/when you spend on those cards.

    Go over to the Debt Free boards where you'll find lots of lovely forumites to help you find ways to tackle that debt.

    You'll need to do a Statement of Affairs (SOA) https://www.lemonfool.co.uk/financecalculators/soa.php

    Once filled in copy it in the MSE format, and paste it in there.
  • BrianW2022
    BrianW2022 Posts: 9
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    Hi Emmia, thanks for replying.

    No I kept the other cards open. I believe that is it good to keep cards active as closing them can affect credit ratings as it reduces the credit you have available. 
    Apart from the £4400 I have at the moment they don't get used at all as I used them over several years to build my credit rating up. As it stands they are all at £0 except for this one and I plan to keep it this way.

    I am not worried about the existing debt as its on a 0% interest card which I can easily pay off before the rate ends.

    It is the loan offer bit that I am really trying to resolve as this is what is preventing us moving forward. We have done extensive budgeting to work out are affordability for the mortgage and loan and they come in well under what we can afford.
  • Emmia
    Emmia Posts: 2,961
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    Hi Emmia, thanks for replying.

    No I kept the other cards open. I believe that is it good to keep cards active as closing them can affect credit ratings as it reduces the credit you have available. 
    Apart from the £4400 I have at the moment they don't get used at all as I used them over several years to build my credit rating up. As it stands they are all at £0 except for this one and I plan to keep it this way.

    I am not worried about the existing debt as its on a 0% interest card which I can easily pay off before the rate ends.

    It is the loan offer bit that I am really trying to resolve as this is what is preventing us moving forward. We have done extensive budgeting to work out are affordability for the mortgage and loan and they come in well under what we can afford.
    The lender doesn't know that you're not going to max out the cards again.

    You've essentially doubled your access to credit (and risk of debt) and you're applying for a loan which will increase your debt level further. 

    I suspect you can't service max levels of debt on all your cards + loan (+ mortgage eventually) and that's why the offers have dried up.
  • Emmia
    Emmia Posts: 2,961
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    Also, the credit rating number you see is meaningless. Only you see it, lenders don't - as is frequently pointed out on the debt boards a bankrupt person can have the maximum score, a pensioner with no mortgage, or credit cards may have an abysmal score.

    Your lenders will have their own internal criteria, and a fresh credit card application (recent) + loan application / enquiries makes you look desperate for money... That means they're taking a risk that you'll default and not pay what you owe.

    Please go to the debt free boards where you can get some great advice from people who've been there, done it and got the t-shirt.
  • BrianW2022
    BrianW2022 Posts: 9
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    Emmia said:
    Also, the credit rating number you see is meaningless. Only you see it, lenders don't - as is frequently pointed out on the debt boards a bankrupt person can have the maximum score, a pensioner with no mortgage, or credit cards may have an abysmal score.

    Your lenders will have their own internal criteria, and a fresh credit card application (recent) + loan application / enquiries makes you look desperate for money... That means they're taking a risk that you'll default and not pay what you owe.

    Please go to the debt free boards where you can get some great advice from people who've been there, done it and got the t-shirt.
    Good point about the credit rating. I will take a look at the other board as you suggested.

  • Grumpy_chap
    Grumpy_chap Posts: 14,429
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    Hi,
       I am in the process of getting a mortgage with my partner and the bank we are using accepts loans as the deposit as we don't have enough saved yet.
    The issue I am facing is for the last few months I have been checking for loan rates and loan offers as I need to borrow £13k and the offers have been great so far and our affordability is good. However I checked today and suddenly the best offer I can get is £7k from my bank and searches on money supermarket come back with 1 offer at a very high rate with only 50% chance of getting it. 
    Nothing has changed on my credit report for months. Only thing I can think of is I had credit card debt of around £4400 across a few cards. I got a new card with a 0% offer for 26 months of £4500 and transferred the debt to it.
    As this puts me close to the limit is this what has messed up the loan offers? If this is the case and I transferred half of it to another 0% card I have would this fix the problem?

    Any insight would be grateful. 
    The "credit rating" you see is not matched to how the credit providers may rate your ability to borrow.
    Any change on your credit activity can cause the "credit rating" to change.
    You now have twice the available credit available so could max that all out.  How quickly can you pay the £4k down to zero?

    You may also find that a borrowed deposit does not get you any nearer to a mortgage.  Making up figures.  Say your max mortgage affordability is £100k (assessed on the basis of £4k other debt, as currently).  If you take out a loan for £13k on top, your mortgage affordability may reduce to £87k.  You remain £13k short of the new home.
  • BrianW2022
    BrianW2022 Posts: 9
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    Hi,
       I am in the process of getting a mortgage with my partner and the bank we are using accepts loans as the deposit as we don't have enough saved yet.
    The issue I am facing is for the last few months I have been checking for loan rates and loan offers as I need to borrow £13k and the offers have been great so far and our affordability is good. However I checked today and suddenly the best offer I can get is £7k from my bank and searches on money supermarket come back with 1 offer at a very high rate with only 50% chance of getting it. 
    Nothing has changed on my credit report for months. Only thing I can think of is I had credit card debt of around £4400 across a few cards. I got a new card with a 0% offer for 26 months of £4500 and transferred the debt to it.
    As this puts me close to the limit is this what has messed up the loan offers? If this is the case and I transferred half of it to another 0% card I have would this fix the problem?

    Any insight would be grateful. 
    The "credit rating" you see is not matched to how the credit providers may rate your ability to borrow.
    Any change on your credit activity can cause the "credit rating" to change.
    You now have twice the available credit available so could max that all out.  How quickly can you pay the £4k down to zero?

    You may also find that a borrowed deposit does not get you any nearer to a mortgage.  Making up figures.  Say your max mortgage affordability is £100k (assessed on the basis of £4k other debt, as currently).  If you take out a loan for £13k on top, your mortgage affordability may reduce to £87k.  You remain £13k short of the new home.
    Hi Grumpy_chap,
      This has been taken into account by the mortgage company. Taking a £13k loan into consideration and the mortgage of £117k cost still comes at around £70k below our maximum affordability of around £200k which is why we are looking at the loan for the deposit. Normally we would prefer to clear the card and save the whole deposit in advance but in our situation we can only stay where we are for another 3-4 months max before we have to move on.

    At the end of this month we could technically clear the credit card debt but this will take all the money we have towards the mortgage deposit and auction fees from the sale and set us back too far and prevent us from being able to proceed and time restrictions are a key issue for us.

    After a discussion this morning we might have a way forward as we are, but we are seeking some financial advice first.
  • Devongardener
    Devongardener Posts: 369
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    ”At the end of this month we could technically clear the credit card debt but this will take all the money we have towards the mortgage deposit and auction fees from the sale and set us back too far and prevent us from being able to proceed and time restrictions are a key issue for us.”

    Are you buying at auction?   If so do you know if your mortgage company will release funds on a property they will not have a chance to approve?
  • MrFrugalFever
    MrFrugalFever Posts: 1,228
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    I have never heard of a mortgage lender allowing credit to form part of the deposit payment (in fact even the conveyancer will check this), must be a new thing? Can I ask which lender it is?

    Taking out additional credit during a mortgage application could lead you to a failed mortgage offer, or worst, a rejection of drawdown after exchange of contracts which means that you legally have to complete the sale as if you don't you could be sued by multiple parties within the chain.

    i would double check the validity of a personal loan once again and avoid taking any credit during an application. Personally i'd find another way to raise the £13k (save up for it would be the best course of action or at worst a gift from someone perhaps).
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  • Mr.Generous
    Mr.Generous Posts: 3,274
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    In really basic terms the lender would be considering that if you can easily afford it, and if you can pay it off so easily then why do you have the card debt and why haven't you saved for the deposit? If you can't save anything without the mortgage what will change to enable you to pay the deposit loan, the mortgage and all the new home expenses?

    Just pay off the cards and save a deposit, far less hassle if you start off home ownership with a clean (ish) slate.
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