Mortgage application and credit card debt

homeownerwannabe · 30 August 2012 at 2:52PM

I would appreciate your views...

My wife and I have about £5k of credit card debt between us but it's all on 0% for about 18 months. We would like to buy a house in about a year's time (we don't want to wait any longer as we want to start a family and can't put it off anymore).

As such we are saving a deposit. We will have the required 10% deposit in a year's time, but only if we don't pay the credit card debt off. We are buying a house well within reach on my salary alone in terms of monthly payments, and we'd have about £800 a month spare to finish paying off the credit cards. We have been working on a budget where we assume the only income is from my salary. This is so that if my wife decides not to return to work we could afford this.

However I have been advised that as my LTV is high and the lender is lending at near the maximum my salary will allow, the credit card debt would not be good and it would be better to pay it off first. I agree with this but it doesn't fit our timeframes.

So - if I apply for a mortgage as a single applicant but obviously my wife will live there too and our finances are all combined, would it be a problem if we transferred all the credit card debt into cards in my wife's name? I know they would see her credit file as we're already financially linked, but would they take her debt into account when deciding on my mortgage application?

I know that this isn't ideal but we want to get moved as soon as possible so we can start a family. We are well aware of the pitfalls of putting the debt into one person's name but we just want to know how the mortgage lender might view our situation.

Hope this makes sense, I really would appreciate views.

gazareth · 30 August 2012 at 3:17PM

Why not obtain a mortgage based on your joint income but budget as though you only have one? You don't need to tell the mortgage lender that your wife may not be working for much longer after a house purchase. Provided that your budget does indeed allow you to do this on your salary alone, then this would seem to be the simplest solution?

homeownerwannabe · 30 August 2012 at 3:27PM

gazareth wrote: »

Why not obtain a mortgage based on your joint income but budget as though you only have one? You don't need to tell the mortgage lender that your wife may not be working for much longer after a house purchase. Provided that your budget does indeed allow you to do this on your salary alone, then this would seem to be the simplest solution?

Thanks. We wouldn't have enough deposit if we paid off all the credit card debt to get the mortgage, but if we transferred what isn't already in my wife's name into my wife's name and then I applied on my own, the lender may be more inclined to lend to me as I wouldn't have any other debt.

Although you're right - if we get the mortgage before my wife goes on maternity leave and we tell the lender my wife will be returning to work fairly soon, the lender should be happy that we're not overextending ourselves and be more inclined to accept us with the credit card debt.

arbrighton · 30 August 2012 at 4:40PM

There was a similar thread regarding CC debt and mortgages a few days ago.
The general consensus was that lenders would take a poor view of lending where the only way buyers could build up their deposit was by essentially maintaining a significant credit card debt.
You may find that your timeframes go out of the window for any number of reasons, particularly if lenders turn you down due to the debt that you are not doing anything about. Owning a home is not a prerequisite for having a family.

homeownerwannabe · 30 August 2012 at 8:04PM

arbrighton wrote: »

There was a similar thread regarding CC debt and mortgages a few days ago.
The general consensus was that lenders would take a poor view of lending where the only way buyers could build up their deposit was by essentially maintaining a significant credit card debt.
You may find that your timeframes go out of the window for any number of reasons, particularly if lenders turn you down due to the debt that you are not doing anything about. Owning a home is not a prerequisite for having a family.

Thanks. I agree, the timeframes are unlikely to go as we wish, but I'm just trying to make the best of our situation and hope that the stars all line up at the right time!

We are also aware that home ownership is not a prerequisite for having a family, though it is still something we want to do. This is mainly because all of the rental properties in the area we live (and want to remain to be close enough to family) seem to be of poor quality and we want to live somewhere where we can make it our own, and benefit from the work we do to it. I know this isn't a right.

To be honest I think I'm going to give up on the idea of ever owning a house, it seems so out of our grasp to have a house and some semblence of a life. I think we've messed up and left it too late. We haven't been extravagant but we have also enjoyed our twenties (we're 27), going away on holiday a few times and spending money on going out. Perhaps the only way we could have afforded a house would have been to stay in every night and never go away. We work hard and earn about £65k between us but the burden of CC debt makes me feel like we're never going to get there. I think it doesn't help that family/friends make us feel like second-class citizens/morons for renting.

Thanks for the input anyway.

MiniSis · 30 August 2012 at 10:10PM

It's £5k don't worry about it and try to pay as much off as possible. I've recently got a mortgage on my own for £120k, £30k salary and 15% deposit and have £3k credit card debt. It wasn't an issue and I'm just paying it off.

Depending on how much you want to borrow depends on whether any debt will affect affordability. Worry about it when you are actually in a position to think about getting a mortgage.

Vyncenze · 30 August 2012 at 10:18PM

homeownerwannabe wrote: »

To be honest I think I'm going to give up on the idea of ever owning a house, it seems so out of our grasp to have a house and some semblence of a life. I think we've messed up and left it too late. We haven't been extravagant but we have also enjoyed our twenties (we're 27), going away on holiday a few times and spending money on going out. Perhaps the only way we could have afforded a house would have been to stay in every night and never go away. We work hard and earn about £65k between us but the burden of CC debt makes me feel like we're never going to get there. I think it doesn't help that family/friends make us feel like second-class citizens/morons for renting.

Thanks for the input anyway.

Don't take this the wrong way, but that seems a bit melodramatic. I don't know where you live, but a joint 65k income and 5k in debt doesn't seem like a huge issue to me. My partner and I make 75k and we're saving around £2500 per month at the moment. I have credit card debt too (about 9k) but it doesn't seem so much once you actually knuckle down and realise what you can save.

For what it's worth, I intend to apply for a 90% mortgage with the outstanding debt still there, and the info I've had on here is it won't be a problem as long as we don't push ourselves too much (we're only going to borrow about 2x income). If it was an issue, I'd just wait another 4 months and pay it off.

Also, 27 is not that old. We're 31 and have put off having a family until now. I don't want to leave it too much longer, but if another year with you both working to clear that debt and get yourself into a home you love is required, it doesn't seem like it should be a major issue?

DVardysShadow · 30 August 2012 at 10:24PM

homeownerwannabe wrote: »

To be honest I think I'm going to give up on the idea of ever owning a house, it seems so out of our grasp to have a house and some semblence of a life. I think we've messed up and left it too late. We haven't been extravagant but we have also enjoyed our twenties (we're 27), going away on holiday a few times and spending money on going out. Perhaps the only way we could have afforded a house would have been to stay in every night and never go away. We work hard and earn about £65k between us but the burden of CC debt makes me feel like we're never going to get there. I think it doesn't help that family/friends make us feel like second-class citizens/morons for renting.

Thanks for the input anyway.

£5k credit card debt on £65k salary and you are giving up on owning a house? You have said that if you did have a house you would have £800/month spare to kill the debt. So it would be gone in 6 months no sweat. It can hardly be that very different for what you are doing now. It is no more than a year on your plans and on £k65 you should be able to see it off faster than that if you make it your priority. If owning a house is such a big deal, then you can afford not to go away or go out in order to kill off this debt for the short time it will take.

Some people give up too easily.

homeownerwannabe · 1 September 2012 at 2:33PM

Thanks a lot for those replies, I really appreciate them.

You are absolutely right, I was being melodramatic because I was having a particularly bad day and getting down about the whole thing. Just feel pressure coming from all angles

As the debt is all 0% at the moment, we're just going to carry on saving - we've got about £2,500 so far and can manage about £1,500 saving each month. We want to get a 90% mortgage on a house which is about £160,000 so with both of our income this is easily manageable and isn't pushing ourselves too far as it's about 2.5x income. Would you agree?

As such we've decided to put off having a baby for a few months so that we can apply for a mortgage with my wife's salary included, and keep the £5k debt and see how it goes. If we don't get accepted, we'll rent for longer, save more and pay the debt off completely.

Thanks again.

DVardysShadow · 1 September 2012 at 5:13PM

Go joint applicants on the mortgage. Otherwise your wife will not be able to go on the deeds of the house - which is not right. I would suggest that you stick with the 0% cards until about 2 or 3 months before you are ready to put offers in. In the mean time pay off your normal credit card spending in full each month. At 2.5 * income, the loss of affordability might remain within the margin to 3 * income - but do take advice. And if you can get yourselves comfortably below the 90% loan to value, that will look much better too.

Over 25 years at 5%, a repayment mortgage is around £850/month for £k144, so it all looks very doable

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Mortgage application and credit card debt

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