Stressing about applying for extra chunk on our mortgage

[lisbapalea]

Can someone help me calm down about borrowing more money - I just want to make sure I have asked all the right questions about our situation before making an application, as I know that if we don't get accepted we will have to wait a good while before we can ask again.

House currently worth c.£450k
Current mortgage c.£205k (deal is 0.99 above base rate, 17yrs left)
Want to borrow extra £50k
Estimated value of house after doing the work is £550k
Currently have £2.5-3.0k on a credit card which we could get rid of by the end of the year if we focused our spending a bit more
My salary is £52.5k with poss bonus of £3k ish at end of year
DH salary is £45k plus bonuses of c.£10k (not guaranteed)

My questions are:

1. Is it imperative we clear the cc debt before applying for extra mortgage?
2. We put quite a lot of money into our pensions, either through salary sacrifice or as separate funds, as well as into savings - does this work against us in terms of affordability?
3. I need a new car and am tempted by a finance package - I assume I am best to wait to do this until after we have made an application as being in debt with a car company would work against us?

What other questions will they ask that we need to prepare for?

Hi I work for a high street bank so can only give you an idea of what we would need.

The credit card may not necessarily need to be cleared unless the application was unaffordable with the minimum repayment or whatever you are paying now but the advisor should be able to tell you whether it needs to be clear as part of the application.

Pensions are included in affordability calculations as they are a contractual commitment.

The other outgoings vary hugely from lender to lender, I work for one of the stricter lenders and we ask for costs for anything 'essential' ie utilities, gas electric water broadband TV sky council tax etc, childcare costs, food, transport travel we then also need to know non essential spending such as entertainment gym etc but some lenders seem to use national averages for these

Oh and the car is much like credit card any new commitment will affect affordability so would really depend on your other outgoings and how affordable the application looks but generally it would be better to do after the mortgage as I imagine it will be easier to get car finance than releasing equity

I'm asking this as an observer, not as someone with specific mortgage knowledge.
If it would take you til the end of the year to clear 3k of credit card, how easy will it be to pay off the extra mortgage? About 300/ month over 15 years??

Thanks for replying!

Will hold off on the car finance I think, and I reckon we can probably get rid of the credit card a bit sooner so we don't need to worry about that when we make the application. I hope our affordability will be ok based on having looked at our fixed costs like utilities, childcare etc, and having tried to be realistic on the non fixed stuff like groceries, fuel costs etc. I have also factored in mortgage outgoings going up by c.£400 a month with the increase, based on keeping the term the same on the new and existing loans.

Addicted - the reason for the possible delay on clearing the credit card is that there are a couple of 'smaller' costs of the home improvements that we can crack on with before going ahead with the mortgage increase. If we maintained the credit card debt instead of paying it off, we could comfortably afford these extra bits (damp proofing etc). But if we clear the debt AND do these jobs we will need to tighten our belts a fair bit as well. Does that make sense?

What not clear the cc, save on the interest - I assume it's not 0% - then do the little improvements?

I don't really get having credit card debt in addition to savings. Is it on 0% interest? If not, why aren't you using your savings?

You've got a great mortgage rate, but if I were the bank I would be a bit concerned that even with that super-low rate and your £100k plus income, you appear pretty close to the edge financially if you're carrying credit card debt.

Op on your salaries that credit card debt won't worry them. I guess from a purely practical perspective if you could clear it before a new loan that would reduce your debt repayment burden.

I don't think you'll have any problems with those figures, depending on what your outgoings are (especially pensions and childcare).

Just a couple of points to mention - the lender will only consider what the house is worth now, what the house will be worth when you have had work done. That is irrelevant. Also, the additional money will not be at the same rate as your current mortgage, it is usually at the best rate the lender has now for the amount you're borrowing / LTV etc. Also, lenders are conservative with their valuations at the moment, so you might think its worth £450k, but you should use perhaps a lower figure to work out which product you'll be offered and then the associated repayments. They won't include your bonus (because they're not guaranteed) and they will consider the credit card by discounting your annual income by 12 x minimum monthly payment (usually).

Thanks for this further feedback.

I agree that we do seem to be pretty 'close to the edge' financially despite the good mortgage rate and good income, but rather being squeezed because of debt (I know we have a credit card but we could ditch it if we made an effort) we're close to the edge mainly because so much of our income is going to savings and pensions. So we're almost stretching ourselves because we're being responsible, rather than because we're being profligate with spending, if that make sense? Or am I kidding myself?!

On another point, and this is probably an embarrassingly obvious question to ask, but we have about £15k aside in 'long term' savings. I hadn't considered touching this for the home improvements, mainly because I have the 'long term' thing stuck in my head (and to me, 'long term' means for 20yrs time). Thinking about it though, given that interest rates are currently rubbish for savings, would we be better off withdrawing this so that we don't need to borrow as much on our mortgage? It would mean we could pay off the credit card, pay for damp proofing and then 'only' borrow £40k as opposed to £50k with the additional mortgage.

Any thoughts from people who are more confident with financial decision making than me?!

If it were me ( and the damp proofing is 2k not 12k), I'd take 5k out of savings for credit card and damp proofing, and take the 50k mortgage. But that's more because I feel more comfortable with a lump sum available should it be needed. But that depends on how much "short term savings" you have!!

Well really, money that is being set aside for 20 years from now needs to be invested, not just sat in a savings account, particularly with interest rates as they are. And I don't mean to sound awful, but really, exactly how much of your income is really going to pension and savings if your total savings pot is £15k? You might be kidding yourself a wee bit. We earn less than you do, but have a mortgage around the same size, although we don't have such a good rate, and we put about £30k a year into savings and pensions...

But at a basic level, you have to ensure that you're making more in interest on your savings (after tax) then you'd be paying in interest on the debt. Don't forget that if you add to your mortgage, that extra interest will apply over the remaining life of the mortgage, even if you don't increase the term. Do you really want to take 20 years to pay off a damp proof course that you already have the money to pay for?

I've just applied for a remortage, have £3k on credit card (at 0%) and it didn't seem to bother them at all. I was quite nervous (having read about how much more stringent they are now) but no-one batted an eyelid.

Hmm - more to think about after these replies!

Combined investments into savings and pensions works out as about £24k a year I guess. But not all of this goes into the savings pot we would withdraw from, which I have now found out has £21k in it, not £15k.

Our other costs are about £900 a month on childcare (prob a bit less than this but I like to err on the side of caution when budgeting), and other 'fixed' bills like council tax, home insurance, utilities, broadband, mobiles, contact lenses, pet insurance etc is about £800 a month.

I agree that the money is probably best invested into property where we will realistically earn more than we would by keeping it in a savings account, even if interest rates do rise. So I think we will withdraw £15k from the savings, which leaves a small amount still in place, and we will continue to save into it.

This means we can borrow the lower amount on the mortgage and means that, like you say, we're not borrowing against the house for smaller projects like damp proofing which we can pay for with money that's already ours.

Does that sound like I have actually made a sensible decision?