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5% mortgages - potential stumbling blocks

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gonsdad
gonsdad Posts: 33 Forumite
in House buying, renting & selling
Hi all


I'm fast approaching 36 and not yet on the property ladder so need to move quickly. I have a Help to Buy ISA set up and with a bit of discipline by the end of 2018 I should have enough to put down 5% on a modest flat (80 - 90k). Will the following prove an issue?


- I owe around £2k on credit cards, interest free for the next 2 years, which I'm paying £80 a month towards. I'm at around 40% of my limit on one card and less than 5% on the other, but it's still a 2k debt so feel I should up my payments.


- I was overpaid working tax credits in 2011 and have been paying this back since 2015, when I was a student. I pay back £10 a month and still owe around £500.


According to Experian I have an "excellent" rating, but it has gone down to 975 from 996 since I last checked a year or so ago. I'm assuming this was because of a couple of big credit card purchases last year. My salary is £31200.


Should I pull out all the stops to get the card and WTC debts down in the next few months? I even considered pausing workplace pension payments temporarily as time is not on my side when it comes to being able to get a mortgage.


Thanks in advance.
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Comments

  • AdrianC
    AdrianC Posts: 42,189 Forumite
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    Until you have £0 debts, you need to think of those debts as offsetting your savings. I bet you're paying far more interest on the debts than you're earning on the savings, too, so it's costing you money to persist in the pretence that they're somehow separate.

    When you say "put 5% down on a modest flat (80-90k)" - you mean you'll have £4,000-4,500 saved up (with all your debts paid off), and will be looking for a 95% mortgage for £76,000-85,500?
  • gonsdad
    gonsdad Posts: 33 Forumite
    edited 13 June 2018 at 3:35PM
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    I'm not paying any interest on the debts until 2020, but sadly I won't have paid all debts off when I apply for a mortgage - I'll still owe 1.5 - 2k on a credit card.


    I'm aware that they offset my savings but from what I've read owing money on a credit card doesn't automatically mean I'd be declined for a mortgage as long as I keep up with payments and don't go anywhere near the limits?


    My ex-partner owed 10k on a car loan and didn't have a problem getting a mortgage (albeit with 10% deposit). This is all quite confusing!
  • Candyapple
    Candyapple Posts: 3,384 Forumite
    First Post First Anniversary Combo Breaker Intrepid Forum Explorer
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    You earn £2k a month after tax and are struggling to clear a paltry £500 debt? Where is your money going?
    I'm a Board Guide on the Credit Cards, Loans, Credit Files & Ratings boards. I'm a volunteer to help the boards run smoothly, and I can move and merge threads there. Any views are mine and not the official line of moneysavingexpert.com
  • Bass_9
    Bass_9 Posts: 151 Forumite
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    Candyapple wrote: »
    You earn £2k a month after tax and are struggling to clear a paltry £500 debt? Where is your money going?

    Understand where you're coming from but WTC is an interest free debt, so I'm guessing it's at the bottom of their list of priorities, although I'm surprised they didn't push for a higher repayment given your salary.

    Unfortunately it's open to abuse and people have sometimes viewed it as an interest free loan... not saying OP intended that though. :)
  • hazyjo
    hazyjo Posts: 15,470 Forumite
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    It's not that they will decline a mortgage cos you have debt - most people have something - it's that they may knock that, plus allowance for interest and risk, off of what they will lend you. Prob even more likely with such a small deposit. Have you allowed for buying costs too?
    2023 wins: *must start comping again!*
  • gonsdad
    gonsdad Posts: 33 Forumite
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    hazyjo wrote: »
    It's not that they will decline a mortgage cos you have debt - most people have something - it's that they may knock that, plus allowance for interest and risk, off of what they will lend you. Prob even more likely with such a small deposit. Have you allowed for buying costs too?


    Yes there is an extra £2k or so for buying costs on top of that.
  • Jane_B
    Jane_B Posts: 131 Forumite
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    If you will only just scrape enough for the 5% deposit, have you also saved for the other moving costs? Such as solicitor fees, mortgage brokers (if needed) valuations, hiring a van (potentially) etc. ?

    You are better off repaying your debts with your savings, then saving for a deposit.
  • gonsdad
    gonsdad Posts: 33 Forumite
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    Candyapple wrote: »
    You earn £2k a month after tax and are struggling to clear a paltry £500 debt? Where is your money going?


    There's money sitting in the bank which could clear it, but one of the points of my post was to query whether that money is best going toward a mortgage deposit or to get rid of said debt.


    If the debt won't cripple a mortgage application, I'd rather keep paying it off at my current rate than wipe £500 off my deposit.
  • hazyjo
    hazyjo Posts: 15,470 Forumite
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    gonsdad wrote: »
    Yes there is an extra £2k or so for buying costs on top of that.
    Doesn't sound like a lot for solicitors, survey, valuation, mortgage fee, van, etc...
    2023 wins: *must start comping again!*
  • gonsdad
    gonsdad Posts: 33 Forumite
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    hazyjo wrote: »
    Doesn't sound like a lot for solicitors, survey, valuation, mortgage fee, van, etc...



    Already have a van.


    Free valuation and £0 fee is included in the Santander / HBOS deals I'm looking at and I was recommended to put aside £1500 by a friend who recently bought a similar-sized property (and who spent less than £1000 on moving costs)


    I'm going to bow out of this thread as I have the info I need and it's turning into a finger-wagging session. Thanks for your replies.
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