Need to remortgage, seeking advice

Seaxwyn

HI folks,

I'd be really grateful for some advice. Apologies for this long post.

My partner and I have a mortgage, £150,942 outstanding, we are currently paying interest only due to paying off other debts.

Our fixed rate deal with Abbey expires in June, and I plan to remortgage rather than go onto their standard deal.

I have read Martin's remortgage guide and will follow his advice. However I am concerned that we are not an attractive option to mortgage lenders for various reasons and I'd welcome suggestions for anything we can do to make ourselves a better bet.

Here are the basic facts:

We are both self-employed and our income over the past 3 years would probably not meet the usual multiples requirements (my partner, particularly, has up and down earnings with the last year having been good). However we have a good track record of paying our mortgage and other debts, with no missed payments. My credit rating is excellent.

Our house is worth easily twice the sum outstanding (£150,942) and possibly a lot more.

We have other debts, namely:
2 loans, roughly 18k and 3k outstanding
2 credit cards (0% or very low interest) totalling £7646
1 overdraft - as of today £1780 but varies wildly (I live in this).

I have savings of £1690 - which I was thinking of paying off the mortgage, but would it be better to get rid of the overdraft or reduce the credit card debt?

Are any kinds of debt more acceptable to mortgage lenders, eg should we transfer the smaller loan to an overdraft or credit card?

Any ideas at all will be gratefully received.

Thank you

Martin_Moore

Seaxwyn,

Firstly the main positive if the house is worth £300k then that is roughly 50% Loan To Value which is very attractive to potential lenders.

You have not mentioned how much you earn but based on what you have written it suggests you are already stretched with two loans 18k and 3k and an overdraft of nearly 2k.

The credit cards are well looked after on 0% which would suggest to me that your credit rating must be quite good.

The loan of 18k (you do not mention the monthly payement) coupled with the mortgage payment is what is stretching you on a monthly basis. You may be best to remortgage on the £151,000 + the £21,000 giving a new total of £172k which is 57.33% Loan to Value which would still be very attractive to any potential lender.

If the overdraft is costing you severe monthy penalties then repay the overdraft quickly.

The mortgage application might be a self-cert application it would depend on how many years of accounts you have and how much net profit you declared. You need 2 or 3 years of accounts to get a status based mortgage.

To sum up the case would be a largely positive one for any lender the biggest negative the amount you earn as it was not mentioned. Rule of thumb about 4/4.5 times joint income.

Your excellent credit rating might mean any application might Fast-Track through some of the High Street lenders.

I am a Mortgage Advisor

jill2002

Don't forget to check the new deals that Abbey will give to you. You will not need to prove your income again - so no worries there.

Seaxwyn

Thanks both of you.

Our earnings are very variable. I make usually around £27k net profit, my husband this year has made about £14k (I estimate) but the last two years much less than that. Hence the worries!

My overdraft is interest free, which is why I have never prioritised paying it off. If having an overdraft is no barrier to getting a mortgage, I'm inclined to use it and my savings to pay off the smaller loan, as that is the highest interest debt we have.

The larger loan is at 6.5%, with 55 months left to run, paying £391/month. I'm not keen on combining it with a mortgage as surely extending the term would mean it cost more in the long term.

Thanks for all the advice and any further thoughts welcome.

Martin_Moore

The combined income 41k times 4 to 4.5 income would equal 164k to 185k that you may borrow.

The main problem might be the affordability of the Mortgage Payment coupled with the loan with 55 months to go of 391 per month. Some lenders would not consider it at all!

I have had cases when overdrafts have caused problems at underwriting stage if the lender requests bank statements. This is not always the case and depends on the lender. However having the spare cash to put it right is well worth having as an emergency.

You sound a sophisticated borrower, you have a positive application only worry would be on affordability grounds having the two repayments when you come to re-mortgage. A flexible style mortgage would allow you to make overpayments which means you could pay off the balance to maybe compensate putting the two loans together.