Looking into 0% deposit mortgage with credit card debt...!

AWR · 11 August 2018 at 9:59PM

Hi,
A little background: my wife and I have around £12k of credit card debt (down from £16k in January :beer:) but it is all 0% interest. Our minimum payments total around £250 at the moment but we overpay and clear around £500/month. We are using about 30% of our total available credit. We have no overdrafts, loans or finance deals. We have one child, and our only childcare costs are paid through the childcare voucher scheme so all sorted before take home pay anyway. Between us, we earn around £40k before deductions.

We have no deposit and around £500 at the moment in savings (intended for Christmas and our upcoming car insurance renewal which we pay in full annually). My parents have offered to help us via the Post Office's Family Link mortgage (or another similar product) whereby the deposit is taken from my parents' property and paid off interest free over 5 years (alongside normal mortgage payments) but our mortgage is secured against both homes. Although I don't think this will be something we are able to do immediately (I've just started a new job and it's temporary initially, plus we don't have enough money saved yet for fees etc), I would like to know if this is something we'd be able to do within the next year or so and if so, what we need to consider.

I am wondering if the fact that our debt is interest-free is looked upon any more favourably by lenders than if it were a higher APR?
Also, is it better to reduce our credit card payments closer to applying for a mortgage so that we have more disposable income or better to keep them high so that lenders can see we are serious about clearing the debt?
Finally, I know it's a fairly new product, but does anyone have experience of the Family Link mortgage or similar? Would I be a more acceptable applicant because the debt is secured against both homes despite my credit card debt or would they consider me a maniac for applying for a mortgage with no deposit and a large credit card debt? :rotfl:

As a first time buyer I feel quite clueless despite having done lots of reading up. I've used a few affordability calculators on bank's websites but as they don't take all of my information into account I'm wary, plus the Post Office doesn't have one for its deposit free mortgage. In an ideal world, I'd wait until our debt was clear (currently looking to be by June 2020) and then spend a couple of years saving for a deposit but when we are paying £625 a month in rent it feels like that's a lot of money to 'waste' over the next 4-5 years if this could be a real possibility. Personally I initially thought it was a no go, but keep hearing of people who have been accepted for mortgages when they thought the same - that they'd never be accepted. So many people have said to me recently, "We didn't think we'd be accepted with our debt/tiny deposit/low wage/temporary job either!" so I feel I should at least consider it, even if you all turn round and tell me I need to get our of fairytale land! :rotfl:

I'd really appreciate advice, particularly from someone experienced in this field or someone who has recently used this product?

Thanks for reading this rather lengthy post!

Thrugelmir · 11 August 2018 at 10:24PM

Certainly could be an option for you in the future. Given you aim to be debt free in a couple of years time.

I'd suggest continuing to reduce and clear the debt you owe. While rent may seem dead money. House ownership isn't simply a question of paying the mortgage. Over burdening yourselves financially isn't worth the risk.

How long do the interest free periods on your credit cards run for? There's little point in overpaying if there's no interest incurred. You could save some of the money elsewhere and generate a little interest income instead.

GoingOn30 · 11 August 2018 at 10:30PM

Your plan sounds feasible but it depends if these type of products will still be available in 1-2 years and with Brexit round the corner who knows.
If you're really serious about wanting to be a home owner in this time frame then you'll likely have to minimise your outgoings and maximise savings in order to pay all the fees as well as continue servicing your credit card debt.

AWR · 11 August 2018 at 10:46PM

Thank you both.

We have a few cards with different interest free periods on, a couple end in December, one runs as far as 2021 and the others somewhere in between. The idea of overpaying is to have the balances clear before they expire (I've basically taken the amount and divided it by the number of months remaining), but I hear what you're saying, particularly if I'm aiming to be clear by 2020 but have a longer interest free period than that, I could lower my repayments and put more into savings until the interest free ends the following year.

I wasn't sure how long these products tend stay on the market for. I got a bit excited at the prospect of taking a short cut basically, but I'm not sure whether it's the right time for us yet and by then, as you say, it may be long gone. Frustrating.

Thrugelmir · 11 August 2018 at 11:08PM

AWR wrote: »

I wasn't sure how long these products tend stay on the market for. I got a bit excited at the prospect of taking a short cut basically, but I'm not sure whether it's the right time for us yet and by then, as you say, it may be long gone. Frustrating.

With a 100% mortgage any amount of debt is likely to impact your application. There's no reason why this product won't remain available. If there's adequate demand. No one is going to stop buying houses because of Brexit. Just as the sun rises every day.

My thinking was if you get any savings into a HTB ISA in the years ahead. With the 25% bonus. Could help pay towards the legal fees and stamp duty.

getmore4less · 12 August 2018 at 7:48AM

Having a look at the PO family link mortgage

The rates

This is offered as a 90% LTV 5y fix 4.69% max term 35y + 10% 5y fix 0% max term 5y

A more typical 90% LTV rate using Barclays as an example is 2.69%
Also Barclays springboard 100% 3 year rate is 2.75% with 3.24%(base+2.49%) follow on

affordability

You have to take into account that you are paying that 10% over 5 years that eats up quite bit of cash that will restrict borrowings.

Say you were borrowing 100% on that Barclays springboard rate over 35 years(although max is 25y)

£120k would be a payment of £445
the post office deal needs
10% @ 0% £12k over 5 years is £200pm
90% @ 4.69% £108k over 35years £524pm

Paying £724pm after 5 years you would owe £101,125

To get the Barclays option to the same amount in 5 years would need a payment of £569pm

That is a basic illustration to give an idea of how big the difference in monthly payments could be.

That's the cost of not having cash available even at a temp loan from parents.

csgohan4 · 12 August 2018 at 9:04AM

be very careful when considering getting a house, lots of other things which you take for granted in rentals are repairs which can be significant and add to more debt, such as boiler, ongoing maintenance, insurance etc

AWR · 12 August 2018 at 1:45PM

getmore4less: I had a brief look at Barclays Springboard but not sure that the deposit can be taken from the equity in my parents' home whereas the PO Family Link. My parents just don't have anything they could put their hands on for a deposit. Since originally posting, my in-laws have actually offered to gift us £4.5k to pay for fees. That has actually made me think it could potentially be more feasible than I thought, it's just the debt and my job being such early days which make me wonder if they'd touch us with a barge pole. Apparently banks can see via my credit file that I'm on a promotional rate on the credit cards but would just love to know if they care or not.

csgohan4: You're right of course and it was something that would probably have been in my next stage of thinking. It does make me wonder if I should be redirecting some of my overpayments on credit cards towards savings so that I've got a larger emergency fund or whether it's better to have a lower amount on the cards - such a balancing act :eek:

Thanks both for your help.

kingstreet · 12 August 2018 at 2:29PM

Lenders use the same amount when taking card debt into account for mortgage affordability, regardless of the actual rate.

Some use 3% of the balance, others 5%.

Is your parents' property mortgage-free?

AWR · 12 August 2018 at 3:06PM

Thank you, that's answered one of my questions. Yes their property is mortgage-free.

Looking into 0% deposit mortgage with credit card debt...!

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