First time buyer advice

crunchypeanut65

Hey everyone!

My partner and I are looking to buy our first property in the next 12 months. 

We've managed to save what feels like a substantial deposit, although the LTV would still be about 85%.

We took out a loan to buy a car at the end of last year.  At the time we were in two minds about using some of our deposit to buy the car outright, but decided on a loan as the bank offered a reasonable rate.

I'm now second guessing this again and am in the mindset it's better to pay off any debt we have before applying for a mortgage, even if this means we'll have a smaller deposit.

Paying off the loan would leave us with enough deposit for a LTV of 88/89%. 

Any thoughts or advice welcome!

Mark_d

Having the loan means part of your take-home pay will go on loan repayments, leaving less to pay your mortgage?  Could you comfortably afford the mortgage repayments if interest rates were to go up to say 8% ?

If your affordability is good then putting down a bigger deposit will possibly get you a lower interest rate on your mortgage. Online calculators/agreement in principle should be able to test affordability

kingstreet

Typically, at 85% the LTI cap will be lower so you'll probably be able to borrow more even with the loan payment than you would at upto 90% without it.

Try playing with different lender affordability calculators and see what happens.

ACG

A lot depends on what your priorities are. 
Do you want to be able to get the largest mortgage possible? 
Do you want to spend the lease possible on a monthly basis? 

Whether you have the loan or not, you should still be able to get a mortgage. It means you will likely be spending more each month as you will have to pay the mortgage (albeit a smaller one) and the car loan. 

However, getting rid of the car loan but having a smaller deposit means you will probably be able to get a larger mortgage as you will not have a loan to pay each month. The rate will likely be higher as you fall into the higher banding, but overall you will likely pay less each month. 

kingstreet

Quick Halifax calculator. 30Y term, £40k income. 5Y Fix.

85% with £250 pm loan = £184,070 max loan
90% with £nil pm loan = £179,600 max loan.

It will depend on income level as capping more extreme at lower incomes.

gwynlas

Will the loan be almost paid off by the time you are needing to start mortgage payments?