Active discussions

Meet the Other Phone. Flexible and made to last.

Meet the Other Phone.
Flexible and made to last.

Buy now

Please or to access all these features

Talk
Money matters

Find financial and money-saving discussions including debt and pension chat on our Money forum. If you're looking for ways to make your money to go further, sign up to our Moneysaver emails here.

Original poster

Does car finance affect the size of mortgage you can get?

32 replies

AngelinaJoelle · 03/09/2021 08:23

I am thinking of taking out £6k of car finance over two or three years, potential commitment of about £180-270 per month.

To what extent would this affect how much a lender is willing to give me for a mortgage please?

OP posts:
OnlyFoolsnMothers · 03/09/2021 08:23

The whole amount comes off what you can borrow- my friend learnt this after taking a 13k car loan

TakeYourFinalPosition · 03/09/2021 08:45

Do the mortgage first, if you can. The mortgage lender will calculate how much you can afford to pay according to the financial guidelines they have to operate within; and then remove any existing debts and stress test the amount you’ve asked for against interest rate rises. Car finance and any other loans etc will reduce the amount they’re happy to borrow quite considerably.

Car finance is also regulated but it’s typically easier to get that after the mortgage, as they don’t have to do as much stress testing - providing that you can afford both, practically and on paper.

DoylyCarte · 03/09/2021 08:47

Yes it affects it as it’s a debt with a monthly/ongoing outgoing commitment.

TheHouseILiveIn · 03/09/2021 08:55

@OnlyFoolsnMothers

The whole amount comes off what you can borrow- my friend learnt this after taking a 13k car loan
This isn't how it works!
Original poster
AngelinaJoelle · 03/09/2021 09:24

@TakeYourFinalPosition

Do the mortgage first, if you can. The mortgage lender will calculate how much you can afford to pay according to the financial guidelines they have to operate within; and then remove any existing debts and stress test the amount you’ve asked for against interest rate rises. Car finance and any other loans etc will reduce the amount they’re happy to borrow quite considerably.

Car finance is also regulated but it’s typically easier to get that after the mortgage, as they don’t have to do as much stress testing - providing that you can afford both, practically and on paper.

I’m looking to do the mortgage from January but need the car sooner than that.

I can’t find out if it is the amount of the loan that affects the mortgage, or the size of the monthly payment?

OP posts:
Daisydoesnt · 03/09/2021 09:29

It’s the monthly payment OP.

Couldhavebeenme3 · 03/09/2021 09:37

*OnlyFoolsnMothers

The whole amount comes off what you can borrow- my friend learnt this after taking a 13k car loan

This isn't how it works!*

Of course it is! Any existing financial commitment is taken into consideration when applying for a mortgage (with the general exception of student loans). I remember in the days long before online applications, I'd have to sit and match up what figures the credit search came up with to the figures the customers had put down on their affordability.

I'm not sure what algorithms are used now, but yes, car finance (personal loans, credit cards, overdrafts, some utilities, council tax banding, mobile phone contracts) can all come up on a credit search, plus things like childcare costs, child/spousal maintenance, and should be included as existing financial commitments.

The Bank wants you to be able to afford to repay your debt to them. If you have hundreds of pounds earmarked already, that will very much reduce your affordability.

Original poster
AngelinaJoelle · 03/09/2021 17:15

Ok, so the best thing to do is to keep the monthly repayments as low as possible?

OP posts:
Pissoi · 03/09/2021 17:25

OP the bank cares about your loan to income ratio, so all commitments are taken into account to see what percentage of your income is left after you pay these so that you can a- afford the mortgage now, and if the interest rate rose significantly. If your debts including the mortgage payment are going to be more than about 40% of your take home pay they will get twitchy, more than 50 and you will struggle. Get the mortgage first, then the car.

Eminybob · 03/09/2021 17:58

The monthly payments will be taken into account when assessing affordability, bit the loan balance as a PP has said.

I would suggest using an online affordability calculator and playing around with the loan outgoings amount to see what effect it has.

Eminybob · 03/09/2021 17:58

*not the loan balance

SweatyBetty20 · 04/09/2021 07:18

Also look at other options to buy the car other than on car finance. I got a £9k loan from Admiral for my car - the interest rate was really low compared to the dealer’s offer.

BarbaraofSeville · 04/09/2021 08:37

@AngelinaJoelle

Ok, so the best thing to do is to keep the monthly repayments as low as possible?
Not necessarily. If you're looking at PCP, it's the total value of the car that's recorded on your credit record, not the monthly payment.

But if you're looking at a £6k loan to buy a second hand car, that could be how it works. Best thing to do is have a play with the 'how much can I borrow' calculators on Moneysupermarket or possibly one of the free brokers sites like L&C or John Charcol to see how it affects your borrowing capability.

Is there any chance you can wait until after you've taken out a new mortgage to replace your car?

Ariela · 04/09/2021 09:18

Personally, unless you've a huge family and need the space in the car or need one that will do specific things (eg tow a trailer), I'd look for an ex-old lady's car that has full service history and just works. Quite often they've been ill/died/given up driving and this car albeit oldish is perfectly fine as a £600 run around for the next 9 months till the MOT is due.
My friend just picked up a 6 year old but immaculate low mileage Fiesta for £700, has FSH and 11 months MOT. She doesn't think the back seats have ever been sat on.

Original poster
AngelinaJoelle · 04/09/2021 09:24

My friend just picked up a 6 year old but immaculate low mileage Fiesta for £700, has FSH and 11 months MOT.

How?! Was it a category SCN? Low mileage Fiestas of that age are going for around £6-7000…

OP posts:
Loudestcat14 · 04/09/2021 09:32

@Ariela

Personally, unless you've a huge family and need the space in the car or need one that will do specific things (eg tow a trailer), I'd look for an ex-old lady's car that has full service history and just works. Quite often they've been ill/died/given up driving and this car albeit oldish is perfectly fine as a £600 run around for the next 9 months till the MOT is due. My friend just picked up a 6 year old but immaculate low mileage Fiesta for £700, has FSH and 11 months MOT. She doesn't think the back seats have ever been sat on.
Ariela is absolutely spot on with her suggestion of buying an old person's car! It makes much more sense for you right now than committing yourself to all that extra monthly payment when you want to get a mortgage. You just need to search hard for the bargains, like this one on AutoTrader.

www.autotrader.co.uk/car-details/202108286755835?year-to=2021&postcode=n80ex&radius=20&fuel-type=Petrol&include-delivery-option=on&onesearchad=New&onesearchad=Nearly%20New&onesearchad=Used&sort=price-asc&price-to=2000&maximum-mileage=60000&advertising-location=at_cars&page=2

Creamcrackersandricecakes · 04/09/2021 09:33

Be careful with the old car thing - we picked up a 2007 Chrysler with only 46000 miles on the clock that had been owned by an elderly gentlemen. After a month the entire clutch system had to be replaced at a cost of over £600. Upon lifting the mats, we discovered a hole gouged in the carpet under the clutch - the garage confirmed that the previous owner had basically driven around with his foot resting on the clutch pedal and had worn it out.
I'd also love to know where you can pick up a 2015 Fiesta for £700!! Shock

Ariela · 04/09/2021 13:39

It was via a friend of a friend - she happened to mention her car had gone expensively wrong and they said 'ah we could help each other out here, we have this car, make us an offer' so they agreed a price. Apologies it was 8 years old not 6 (can't do sums)

ForensicAccountant · 04/09/2021 21:59

@Couldhavebeenme3 ‘general exclusion of student loans’

I don’t quite understand where these statements keep coming from - all lenders I have dealt with recently have taken student loan repayments into account when calculating affordability.

TheHouseILiveIn · 04/09/2021 23:37

[quote ForensicAccountant]@Couldhavebeenme3 ‘general exclusion of student loans’

I don’t quite understand where these statements keep coming from - all lenders I have dealt with recently have taken student loan repayments into account when calculating affordability.[/quote]
Because people don't know what they're talking about and spout 'advice' on threads like these as though it is fact. Same with the 'the whole value of the loan gets taken off what mortgage they will let you have' above.

Couldhavebeenme3 · 05/09/2021 09:47

It's been a few years since I processed mortgage applications, as I wrote in my op, and at that time student debt generally was excluded in my particular bank.

It's up to op to make her own enquiries with lenders/brokers, and to figure out which is more important to her - a car on finance or an affordable mortgage with payments she can afford. I drove a crap car for years when I bought my first home because getting the best deal/mortgage I could was a higher priority.

BarbaraofSeville · 05/09/2021 09:54

Don't they consider your student loan payments into account in terms of your take home pay?

Someone with a gross salary of £40k that has student loan payments will take home less each month than someone who also earns £40k but doesn't have student loan payments. It wouldn't make any sense to ignore this fact.

If a couple earning this amount both had student loan payments, their monthly household income would be £2/300 less than the same couple without student loan repayments so obviously affects the amount of mortgage you can afford.

OnlyFantastic · 05/09/2021 09:59

You'd be crazy to take out any finance shortly before a mortgage application.

Yes, it could dramatically reduce the anoint some lenders will lend you.

Just buy a £500 banger to see you through. Even the cheapest and shittiest of cars, if they've passed an MOT in the last few months, will usually last several months.

GettingItOutThere · 07/09/2021 22:19

dont do it! get a shit runaround until after you have got your mortgage, as it will massively reduce your borrowing! it goes on monthly repayment affordability too so you will be hugely reduced.

hawkstonefarley · 31/05/2022 14:09

yes it will affect the amount you can lend. Basically, a lender will look at what other debt you have to your name, in this case - motor finance. They will take that in to account when deciding on how much to lend you. They will also look at your monthly outgoings, which will determine how much they think you can afford each month. If you want to reduce your monthly outgoings, you can always refinance your existing car agreement. Car refinancing basically takes the amount of money you owe, and spreads the cost over a term, such as 60 months.