Debt Priorities before mortgage application

ScrapMonkeyWaffle

Good morning everyone! 

I'm looking for some advice, and reassurance hopefully. We have a reasonable joint income of around 100k, but I am currently enduring some high credit utilisation and DTI which is hampering my credit rating and chances of getting a mortgage.

I have a consolidation loan of 25000 ticking over at 500 a month which will not be cleared for several years, I also have a loan with Halifax which is due to be paid off in June 26 (Balance 5000 ish) and two credit cards. One is very high utilisation (6200 balance, 7000 limit), and the other one slightly better (1600 / 2150). Both cards are on a 0% offer.

I have a tight timeline to clear these as we need to buy a house early next year.

My question is in terms of applications, should I pay off the Halifax loan early and reduce my total outgoings, or attack the credit cards first in order to improve my credit rating pre application? And are my chances of getting a mortgage with the debt I currently have viable?

Thanks for the help.

ACG

Generally speaking, I wuold say to clear the highest interest first. 
However, I think if your credit cards are highly geared, it might be worth making a dent into them. 

If you can get that £6200 one down to 5500 then its going to look quite different. Once you have done that, then I would say concentre on whatever is the highest interest. Try to get the credit cards down asap. Ideally 3-6 months before you make an application. 

We had a case just last month where the lender declined the DIP, we had to wait 42 days for the credit report to reflect the paid off credit card, we did the DIP a few times in the interim but only once the credit report had updated AND the lender had updated it their end did it pass the credit check. It took about 25 days longer for the lenders version of the credit report to update compared to the ones we had. 

Brie

Given the CCs are currently 0% I would leave those for the moment.  

Presumably the consolidation loan has the highest interest rate and that would normally be the one to attack but given the size it might be best to leave that too for now.

If the Halifax loan can be paid asap that would be my suggestion.  Given that you state you'll have paid off £5k by next June that suggests you're paying about £500 a month.  So if you clear that and then pop the payments saved against the CCs that will make your monthly obligations look much better. 

You might also consider lowering the limit on the higher one or closing the other - my last mortgage application was nearly compromised by the amount of credit I had available, as opposed to how much I was using.  So have a look too at what other credit you use or have - your overdraft, phone contracts, insurance paid monthly - and limit that where possible.  

And check for the obvious plus on your credit history - does it show you are registered to vote?  And the negatives - any CCJs lurking?

Isthisforreal99

Begs the question, where is the deposit coming from?

How much are you looking to borrow and how much deposit?

ScrapMonkeyWaffle

Thank you for all the replies. No CCJs or missed payments, although I did stupidly take some cash out on a credit card fairly recently without realising the damage that does to my credit rating. I'm hoping that clearing the residual debt will make up for that error.

The deposit is a combination of a work scheme, family gifted funds and if we go for a new build potentially some additional deposit contribution from the developer. 

Looking at buying somewhere in the 300-350k mark but willing to stretch a bit for a new build if we use the above scheme.

I'm leaning towards clearing the Halifax loan then stacking the residual on the cards.  I'm conscious that a regularly paid loan probably doesn't look as bad as a high utilisation card, but the extra money from the cleared loan will be really useful to hit the cards harder before application. And it just feels like more of a win having cleared it! But if having higher credit card balances is a showstopper then I obviously need to prioritise them.

ACG

None of it will be show stopper. There is also no such thing as a credit score when it comes to your mortgage (in the main).

Most mortgage lenders score your application using their own calculation. Some lenders are harder on highly geared credit cards than others. Also you clearing your credit card today does not mean it will be reflected in the lenders credit check tomorrow or even on the first of October, it can take up to 3 months. Given you are looking at applying early next year, that gives you less than 6 months I assume - which means if you have not brought those credit cards down within the next 3 months, they could play a factor in any negative decision. 

However there are so many different factors. But being really brutal, I think you will be fine btw, you seem to have a decent income but I imagine some lenders you might struggle with. Your not actually putting any money in by the looks of it - some of it from a work scheme, some of it as a gift and some of it from some sort of govt scheme... Combined with a reasonable amount of debt. It might not be for every lender. 

I think you will get there and at normal rates (so this isnt being said to cause any addition stress etc). I think you need to put your research into who to apply to or use an experienced broker. 

ScrapMonkeyWaffle

Thank you for the advice and the honesty, I appreciate it.