Possibility of getting a mortgage with a DMP

ian1246

This sounds like madness to me.

£600 a month debt (more once you come off 0% interest).  To withdraw £22,000 to pay off your debts, after the 25% loss, is £27,500 - so you'd still have £12,500 left for a deposit & then 2 years to rebuild it back up, using the repayments you'd have made for your debt - thats £14,400 deposited back (assume your both under 40 & have Lisa's? £4000 a year each saving limit - so £8000 a year!). Plus whatever extra you were going to be paying in debt repayments when the 0% credit cards end - odds are good you could get back to close to £40,000 deposit when your 2 years is up.

I appreciate the loss of that £5500 (25%) is painful, but I'd imagine you'll pay substantially more than that in interest on your £22,000 of debt between now & whenever you pay that amount back.

Plus if you go on a debt management plan, your mortgage interest rates will be higher. Even 1% higher interest on a £180,000 mortgage will cost you £1800 a year for however long your mortgage is.

You need to run the figures and decide what's best financially - if that means sacrificing the deposit, so be it.

Jimby509

ian1246 said:

This sounds like madness to me.

£600 a month debt (more once you come off 0% interest).  To withdraw £22,000 to pay off your debts, after the 25% loss, is £27,500 - so you'd still have £12,500 left for a deposit & then 2 years to rebuild it back up, using the repayments you'd have made for your debt - thats £14,400 deposited back (assume your both under 40 & have Lisa's? £4000 a year each saving limit - so £8000 a year!). Plus whatever extra you were going to be paying in debt repayments when the 0% credit cards end - odds are good you could get back to close to £40,000 deposit when your 2 years is up.

I appreciate the loss of that £5500 (25%) is painful, but I'd imagine you'll pay substantially more than that in interest on your £22,000 of debt between now & whenever you pay that amount back.

Plus if you go on a debt management plan, your mortgage interest rates will be higher. Even 1% higher interest on a £180,000 mortgage will cost you £1800 a year for however long your mortgage is.

You need to run the figures and decide what's best financially - if that means sacrificing the deposit, so be it.

Thanks for the input.  But not quite accurate though that's my lack of explanation.

We currently have £29,000 saved deposit.  I project that it will be £42,000 when we try and buy as I pay bills/rent/debt and my wife pays into the LISA.  The LISA is in my name and I'm 43 she is 48.  We have just the one LISA, in my name.

My debts are

Loans £8000 at 16% £400pm
Credit card 1 £5700 at 0% for life £90pm
Credit card 2 £3500 22%
Credit card 3 £2500 18%
Overdraft £1000 0% for life

I am yet to call credit card 2 and 3 to negotiate.

Also I know that credit card 1 technically is an arrangement to pay but they said it was a new contract not to be reported to the credit bureau.  I had a breakdown over debts two years back and told credit card 1 about this, I think that's why they were so amicable.

I do understand the logic of withdrawing from the LISA and taking the hit but saving interest but it's not madness not to.  Also though it's logical I did rack up the debt and I don't like tainting wife with it.  Yes I know it's not logical.

Thanks for the advice 

ACG

But by going into a DMP which appears to be completely avoidable, your tainting your wife with an adverse mortgage (just using your words there btw). 

Doing the DMP seems to be less about financial sense and more about how you feel about the debt. You would be saddling yourselves with a higher interest rate on a massive loan. 

I would put the figures in a spreadsheet personally. But I am with Ian. I dont think it makes any financial sense. Although you might end up being able to avoid it if the other companies agree to do something similar. 

Isthisforreal99

Jimby509 said:

ian1246 said:

This sounds like madness to me.

£600 a month debt (more once you come off 0% interest).  To withdraw £22,000 to pay off your debts, after the 25% loss, is £27,500 - so you'd still have £12,500 left for a deposit & then 2 years to rebuild it back up, using the repayments you'd have made for your debt - thats £14,400 deposited back (assume your both under 40 & have Lisa's? £4000 a year each saving limit - so £8000 a year!). Plus whatever extra you were going to be paying in debt repayments when the 0% credit cards end - odds are good you could get back to close to £40,000 deposit when your 2 years is up.

I appreciate the loss of that £5500 (25%) is painful, but I'd imagine you'll pay substantially more than that in interest on your £22,000 of debt between now & whenever you pay that amount back.

Plus if you go on a debt management plan, your mortgage interest rates will be higher. Even 1% higher interest on a £180,000 mortgage will cost you £1800 a year for however long your mortgage is.

You need to run the figures and decide what's best financially - if that means sacrificing the deposit, so be it.

Thanks for the input.  But not quite accurate though that's my lack of explanation.

We currently have £29,000 saved deposit.  I project that it will be £42,000 when we try and buy as I pay bills/rent/debt and my wife pays into the LISA.  The LISA is in my name and I'm 43 she is 48.  We have just the one LISA, in my name.

My debts are

Loans £8000 at 16% £400pm
Credit card 1 £5700 at 0% for life £90pm
Credit card 2 £3500 22%
Credit card 3 £2500 18%
Overdraft £1000 0% for life

I am yet to call credit card 2 and 3 to negotiate.

Also I know that credit card 1 technically is an arrangement to pay but they said it was a new contract not to be reported to the credit bureau.  I had a breakdown over debts two years back and told credit card 1 about this, I think that's why they were so amicable.

I do understand the logic of withdrawing from the LISA and taking the hit but saving interest but it's not madness not to.  Also though it's logical I did rack up the debt and I don't like tainting wife with it.  Yes I know it's not logical.

Thanks for the advice 

I took it from your original post that the £44k was already saved so now you have clarified you are still saving, it is absolute madness to prioritise saving over clearing your debt.

ian1246

Jimby509 said:

ian1246 said:

This sounds like madness to me.

£600 a month debt (more once you come off 0% interest).  To withdraw £22,000 to pay off your debts, after the 25% loss, is £27,500 - so you'd still have £12,500 left for a deposit & then 2 years to rebuild it back up, using the repayments you'd have made for your debt - thats £14,400 deposited back (assume your both under 40 & have Lisa's? £4000 a year each saving limit - so £8000 a year!). Plus whatever extra you were going to be paying in debt repayments when the 0% credit cards end - odds are good you could get back to close to £40,000 deposit when your 2 years is up.

I appreciate the loss of that £5500 (25%) is painful, but I'd imagine you'll pay substantially more than that in interest on your £22,000 of debt between now & whenever you pay that amount back.

Plus if you go on a debt management plan, your mortgage interest rates will be higher. Even 1% higher interest on a £180,000 mortgage will cost you £1800 a year for however long your mortgage is.

You need to run the figures and decide what's best financially - if that means sacrificing the deposit, so be it.

Thanks for the input.  But not quite accurate though that's my lack of explanation.

We currently have £29,000 saved deposit.  I project that it will be £42,000 when we try and buy as I pay bills/rent/debt and my wife pays into the LISA.  The LISA is in my name and I'm 43 she is 48.  We have just the one LISA, in my name.

My debts are

Loans £8000 at 16% £400pm
Credit card 1 £5700 at 0% for life £90pm
Credit card 2 £3500 22%
Credit card 3 £2500 18%
Overdraft £1000 0% for life

I am yet to call credit card 2 and 3 to negotiate.

Also I know that credit card 1 technically is an arrangement to pay but they said it was a new contract not to be reported to the credit bureau.  I had a breakdown over debts two years back and told credit card 1 about this, I think that's why they were so amicable.

I do understand the logic of withdrawing from the LISA and taking the hit but saving interest but it's not madness not to.  Also though it's logical I did rack up the debt and I don't like tainting wife with it.  Yes I know it's not logical.

Thanks for the advice 

Thanks for replying back. Unfortunately your figures only reiterate further just how much of a bad financial decision it will be to prioritise saving over your debt.

Please do some research on the typical rates of Adverse Mortgages vs. high street - we're talking about potentially a couple of % difference!!! On a £180,000 Mortgage 2% is £3600 - an extra £300 a month in mortgage payments, for the next 6 years (until your defaults clear - if you go for a debt management plan -, which take 6 years from the point of defaulting).

That 16% on £8000? £1280 interest a year. What's your LISA Saving Rate? 4%? That's £320 saving interest vs. £1280 debt interest - you'd quite literally be £960 a year better off by paying that off right now.

£3500 at 22% - £770 interest a year. LISA Saving Rate 4% - £140. You'd be £630 a year better off by paying that off.

£2500 at 18% - £450 interest a year. LISA Saving Rate 4% - £100. You'd be £350 a year better off paying that off.

That's a total saving per year of £1,940 a year by clearing £14,000 of your debt here and now - and that extra £1940 in saved interest can then be put towards saving £5700 in regular savers (i.e. Natwest and RBS both have a digital saver which allows you to save £150 a month, paying 6% interest up to £5000 each. First Direct has a regular saver paying 7% interest, up to £300 a month for 12months) to pay off the 0% interest when its 0% interest deal ends. If you get rid of your other debts, you'll probably stand a much better chance at getting another 0% credit-transfer deal as well if you did want to roll that £5700 onto another 0% deal!

By paying off that debt, you'll genuinely be saving £1,940 interest a year now - and then when you eventually buy a property, assuming you get a £180,000 Mortgage (which since you won't have defaulted, you'll stand the best chance of doing so!!!), that'll be another £3600 interest a year (i.e. if 2% difference between adverse mortgage vs. high street rates, just as an example) saved for the next 6 years (by not defaulting, thus not having to wait for 6 years for your credit file to wipe clean).

You keep talking about not wanting to saddle your wife with your mistakes - well your supposed to be a team. Sit down with her, discuss the figures and reach a decision together on what to do with your savings / debt.

But honestly? From my point of view, your at real risk of making a financial mistake of epic-proportions, so much so that it'll blow all your previous mistakes out of the water in how terrible a decision it is.

If you don't understand why I say this, you can quite literally run the estimated/projected figures and put an rough value on how much that mistake will cost you and your wife - i.e. £1,940 a year lost in debt interest payments until you buy a house (IF you can with numerous defaults) and then another £3600+ a year in increased interest payments on your adverse mortgage (i.e. if the interest is 2% higher vs. other normal mortgages) for a minimum of 6 years - call it 2 years to buy a house - £3,880 in debt interest payments - and 6 years at £3600+ extra interest - £21,600. Total cost: £25,480.

Are those LISA 25% Values really worth such a cost? Please please reconsider.

Jimby509

@ian1246

Thank you so much for the post.  I am sorry that I did not reply sooner to acknowledge it.

What you say has made me view the situation differently.  Though when you factor the losing 25% bonus and the penalty it is not quite as clear cut to withdraw the LISA savings to pay down the debt.

So for example, if I withdraw £8000 from the LISA to pay off the loans I would lose 25% plus penalty so £10500 would be taken from the savings to withdraw £8000.  I would lose £2500 (£2000 gov bonus and £500 penalty) not to mention any interest.  So it is probably best to leave it in the LISA.

However it does make me rethink the credit card debts that I have.  They are higher interest and instead of putting more money into a LISA it clearly makes sense to throw the money at the debt.

The DMP looks like a great way to shoot myself in the foot.  Thank you for clarifying exactly how negative this would be for any mortgage rates.  I am really glad that I held back.

Thank you once again and for everyone's input on this matter