moving to cheaper property, smaller mortgage, but have debt!

gingertomcat24

hi, trying to find out thoughts on our situation.
house under offer - looking to buy house that is £200k cheaper. will use £260k from sale as deposit after £50k debt cleared with money from sale. 
Will be looking to take mortgage from £258k to £165k

Will we have an issue getting the mortgage ? I spoke to our lender on the telephone without giving debt figures and they weren't clear about how they work it all out. 
Im worried the debt will go against us, when the reason we want to move is to clear it all and become in a far better situation. 

Mark_d

The debt shouldn't go against you if you have no missed/late payments

freesha

What debt is it? Do you mean the mortgage outstanding, or unrelated debt?

Brie

If you have a few thousand on your credit cards and are just taking your time paying that down I doubt that would be a problem.  If you have a few thousand on several cards each and are paying the minimum and missing payments well they are going to have a good long look at your situation.  

Basically - what they want to see is that you have the income to pay your debts (of whatever sort) and your new mortgage as well as your day to day expenses.  That you are downsizing should make it easier for you (& less risky to them) as long as your income is staying the same or growing.  

Give us some more details and we might be able to give a better answer.  

And if you are really worried about your debts you might want to visit the debt free board - lots of helpful advice there!

gingertomcat24

freesha said:

What debt is it? Do you mean the mortgage outstanding, or unrelated debt?

No missed payments on anything, ever. But £40k CC debt which will be completely cleared at time of completion. Just worried it will impact us being able to get another mortgage.  We have a mortgage already and never missed payment either. 

gingertomcat24

Brie said:

If you have a few thousand on your credit cards and are just taking your time paying that down I doubt that would be a problem.  If you have a few thousand on several cards each and are paying the minimum and missing payments well they are going to have a good long look at your situation.  

Basically - what they want to see is that you have the income to pay your debts (of whatever sort) and your new mortgage as well as your day to day expenses.  That you are downsizing should make it easier for you (& less risky to them) as long as your income is staying the same or growing.  

Give us some more details and we might be able to give a better answer.  

And if you are really worried about your debts you might want to visit the debt free board - lots of helpful advice there!

A lot of CC debt due to various factors, never missed payment 
will clear all debt at time of move and also pay £100k off the mortgage total 
hoping to purchase house at £425k and deposit £260k - that would be only debt then 
I’m just unsure how it would work if this would go against us? Do they take in to account that it would be paid off? 

Bookworm105

you will not have cleared the debt at the point in time you apply for the new mortgage, therefore that new lender may see you as:
165k mortgage 
40k debt
and thus assess your income against can you afford to service 205k of debt?

they have no guarantee you will use the surplus funds from the house sale to clear the debt  

user1977

Bookworm105 said:

they have no guarantee you will use the surplus funds from the house sale to clear the debt  

It’s pretty commonplace to make it a condition of the mortgage that you’ve cleared the other debt at completion. I don’t think it’s a problem.

EssexHebridean

It’s not usually a problem, but the lender can make it a condition that your solicitor clears the debt from the sale proceeds, as part of the transaction. They can also allow the sale proceeds to go back to the client in the normal way, but then do a credit check themselves a few months in and if they were to discover the debt had not been cleared then they could feasibly call in the mortgage.  It would not be a good idea to “forget” to clear the debt, let’s put it that way! 

The other thing I will say is that it is vital to be very clear on how the debt arose, particularly when it is a large sum as in this case. It may be due to one off events out of the debtors control, but it may also be down to overspending and living beyond their means. If the latter, then learning to budget and save is a vital part of dealing with the situation otherwise in a few years the individual will find their  house being exchanged for something even smaller in a bid to clear the same amount of debt all over again. Essentially downsizing to clear debt is only a good decision if the downsize would have happened anyway, and the cause of the debt has been dealt with.