Credit card and remortgage

[Mortgage123]

Got a £2000 balance on a credit card (interest free) which I’m paying off over the next year. Have savings and could pay this off, but would only have £4000 left for emergency.

Need to remortgage in October as fixed rate is ending. Also want to borrow more ideally for extension.

Should I pay off the credit card with savings now? Or is it ok to have that being chipped down when applying for a remortgage?

It’s a bit difficult to answer this question without knowing what the context is - is there a good credit history otherwise? What your affordability like? How much equity do you have in the house? How much LTV will you be asking for if you ask to borrow more? All of these will determine how the bank views you. They are unlikely to pick on a random thing - but look at whole picture of affordability, credit history and their own credit scoring mechanism, LTV proposed with additional
Borrowing etc.

‘Excellent’ credit score for me and DP. Affordability a bit tight for the higher borrowing. 100k equity and want to borrow 70-80K. LTV will be 90% ideally. Possibly increasing the term (25 to 30) to make affordability work.

First of all - the credit “score” you see on the agencies (Experian, equifax) are meaningless - the lender will do their own credit scoring.

The amount of equity is less important than the LTV. And that in your case is a 90-10 with your additional and this is I think what lenders are going to focus on. The affordability will “stress test” you as well with cost of living increases factored in too. So - you’ll need to see if - all that taken into account - whether they are happy at all for you to be given the full extra amount you are asking for, for a 90:10 LTV.

And yes in this case I think reducing outgoings as much as possible would be key to give your affordability the best chance.

From what I remember, when I did several AIP a few months ago, you have to provide information about credit card debt. I think it will affect your affordability, so your borrowing will be reduced. There was nothing in the AIP about savings, which means they don't help your borrowing!

Maybe speak to a broker who knows more about affordability criteria to see if it make sense to repay the credit card in your case.

Or you could play around with the AIP calculators yourself to see how much difference the debt makes.

Personally I'd try and accumulate more savings so you have a bigger buffer for emergencies.
Remember that under current price increases building costs and materials are climbing rapidly.
I would also do a calculation to ensure you can continue to make repayments at higher interest rates as rising inflation will likely lead to climbing interest rates, not helped by the current war.
I understand that mortgages are largely assessed on affordability and how much income you have after all expenses are paid.

The key here is what the banks decides is your affordability.

They will take into account the facts that -

1. You don’t have a big margin/equity/deposit and it’s a high LTV of 90:10.

1. That you are looking to take additional money out stretching your term to maximum to make the cut

1. Your current monthly commitments

1. The cost of living increase which they will apply to your affordability calculator

1. The usual stress testing.

Thanks all. That’s really helpful. We’re not 100% on going for the extra borrowing/extension just now, but want to try and be prepared if decide to do it. It might just be too expensive (2 kids in nursery doesn’t help…)
Will get hold of a broker and see how it all lays out.