How bad are our chances?

Evie.S

Due to a rent increase, me and my husband are considering shared ownership to get on the property ladder. Yes I know it’s not ideal, but even with rent + mortgage it will be less money than the new rent amount, for a bigger, better house that we don’t need to ask permission to decorate and that is more secure. We would be able to get a deposit together with some help from our parents. 

However, I’m not sure we have a chance at actually getting a mortgage. After a surprise baby, maternity leave that we hadn’t saved for (because surprise baby!) and the consequent reduced income, our debt has crept up and credit score has gone down. I’m now at the end of maternity leave so from the end of September my income will normalise and I’ll hopefully be able to start paying off my credit card and overdraft, but the rent increase mentioned above does make that a bit trickier. IF we were to apply for a mortgage as we currently are, would we have a chance at all? 

We’d be looking at borrowing 132k for a 30% share with a deposit between 10-15% (possibly stretching to 35% share but probably not)

Me: basic salary 31.5k, likely to be closer to 39k after overtime (that was last year’s total) but I can’t guarantee that so won’t be included. 

Husband: basic salary 29.1k, no overtime available. 

Debt:
- overdraft 1.5k, gets covered every payday but over the last few months I’ve been getting closer and closer to the limit towards the end of the month. 
- credit card 2.5k, very close to limit at the moment 
- loan 4k (my name)
- loan 9k (husband’s name) 
- car finance 24.5k (I know, I know, we should find something cheaper, but for this exercise let’s assume we keep it)

His credit score says “good”, mine says “fair”. We have never ever missed a payment for anything. I’ve been researching affordability criteria and we could afford to pay for the mortgage + shared ownership rent comfortably even with all the loan repayments and credit card interest etc, but would any lender even look in our direction before we clear some of this debt?

Just to be clear, we have every intention of paying off this debt as quickly as possible, not just drag it along. And yes I do feel uncomfortable with the thought of taking out a mortgage when we already have a significant amount of debt, but where before this rent increase we had some hope of paying this off relatively quickly (after maternity leave etc) now it will take much longer and it just feels really depressing to be paying 1.5k rent to our landlord when we could be paying at least half that towards our own home, even if it’s just a small share of it for now. 

I guess I’m wondering how long we’ll have to wait to possibly be accepted for a mortgage. I’m assuming right now our chances would be about zero. But if the lender asks for 3 months of payslips does that mean that we could improve our chances significantly in a few months, by having decent income in those 3 payslips and hopefully reducing the overdraft/CC debt by a few hundred pounds? Or am I being terribly optimistic and nothing will make a big difference until a massive chunk of the debt is cleared? 

Sorry for the long post, thank you if you read it all! 

Emmia

If/When you're working, who is looking after the baby, and how much will that cost?

Personally I'd get a cheaper car, and pay off (and reduce the potential size permanently) the overdraft, which it sounds like you're living in most of the time, even if it's not all used. I have one overdraft facility and it's £100, the biggest arranged overdraft I've had was £500 as a student.

You might want to pop over to the debt free wannabe boards, post a statement of affairs (SOA) and then the nice people there may be able to help you find obvious savings in your budget to get you to a better place for the mortgage.

Evie.S

Emmia said:

If/When you're working, who is looking after the baby, and how much will that cost?

Personally I'd get a cheaper car, and pay off (and reduce the potential size permanently) the overdraft, which it sounds like your living in most of the time, even if it's not all used. I have one overdraft facility and it's £100, the biggest arranged overdraft I've had was £500 as a student.

You might want to pop over to the debt free wannabe boards, post a statement of affairs (SOA) and then the nice people there may be able to help you find obvious savings in your budget to get you to a better place for the mortgage.

Hi, thank you for replying.

Total childcare bill will be around £780 (just realised I only mention the baby but we also have a toddler and a school age child). This is usually paid mostly by childcare vouchers via salary sacrifice. I don’t know if it would be best not to do this for some time as it technically lowers our income? Or if it makes no difference because they’ll include the childcare costs anyway. 

I will have a look at that board thank you. I was looking at numbers last night and if I do as much overtime as possible I could probably reduce the credit card debt/overdraft to half within 3/4 months. So that should at least make it look better in terms of credit usage! 

Our other option is going for a lower share with the shared ownership property, which would need a lower mortgage but obviously more rent. Lots to consider! 

ACG

Forget your credit score, its in the main a made up number. At best it is an indication. 

Speak to a broker, but it shoudl be fine - although you might struggle to use the overtime income as there has been no evidence of it for a while.