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Original poster

Applying for a mortgage with debt

21 replies

Tinkoschminko · 13/04/2019 12:28

After any input from people that understand finances/ mortgages please...
We want to move house. We’ve got a fair bit of equity in our current home but also approximately £8,000 in overdraft and CC debt. We don’t have savings to clear this before moving - the plan is to use about 10K of the money earned from the sale of the house to clear debt, then put in a 20%+ deposit on a new home with the rest. I’m aware, however, that this means the debt won’t be cleared at the point where we apply for a new mortgage. Are we likely to be refused? Are we best just to sell up and stay with family until we’ve cleared that debt, then reapply and move afterwards? No late payments or anything on our credit history - all on time, just long term to clear! Didn’t have any debt when we first bought this house ten years ago.

OP posts:

florence11 · 13/04/2019 12:53

Some lenders request you clear the debt before taking out the new mortgage, ie. at the time of selling/purchasing. It will depend on how much you earn, how much you want to borrow as well as how much the other debt is.

Poppins2016 · 13/04/2019 12:56

I'd find a good broker to advise you (if they're decent, they shouldn't charge). There are many providers who will lend if you have debt, so long as you pay on time.

Original poster

Tinkoschminko · 13/04/2019 12:59

Thank you. I was hoping to continue with NatWest as we have our current mortgage there - given the increase in deposit, it shouldn’t be much more to borrow than our current mortgage. But I’ll speak to a broker - thank you!

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Newmumma83 · 13/04/2019 13:08

I believe unless it has changed as long as you state that you are clearing the debt with equity they will be fine ( there is prob a bit more too it than that but they can look into it for you not sure on the full process ) ... go to your local Natwest and speak to a senior personal banker they can run a quotation for you and refer you to a mortgage adviser when needed ... and check exact order of events ... and run through all options

Newmumma83 · 13/04/2019 13:09

They can do that over the phone too x

NeonK · 13/04/2019 13:10

Speak to your current lender if you want to stay with them. I just did this - I had to sign a thing saying I would clear the debt with some of the capital as agreed but other than that it was fine. I got the impression it was fairly common.

Worth checking some of the comparison sites to get an idea of where your preferred lender sits in terms of interest rates etc. Might be worth moving mortgage provider (either via a broker or direct) if you can get significantly better deal somewhere else.

Original poster

Tinkoschminko · 13/04/2019 13:13

Fantastic - thank you. I was planning a provisional chat but would really like to get it in writing so I’ll see if that’s possible. We had a loan process where we were told the CC debt didn’t matter and when it came down to it, the underwriter insisted it really did so I’m a bit wary of going through the process without something definite to go on.

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Perty01234 · 13/04/2019 13:17

We are looking to remortgage next year and have considerably more debt! We are remrtgaging for a better deal and to pay off some of the debt. We’ve been told this is very achievable and will be doing it through a broker so I think you will be fine OP as we’ve got three times as much debt as you!!

Original poster

Tinkoschminko · 13/04/2019 13:18

Thanks perty that’s hugely reassuring! And I hope it goes well.

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tisonlymeagain · 13/04/2019 13:24

I took out a mortgage in the summer through a financial advisor. My loan to value was 26% of near half a million, and NatWest wouldn't even consider it with £2.5k on my credit card. I had to clear it before they would proceed. (Which was ridiculous because as soon as they made the offer, I put a holiday on it)

Blankspace4 · 13/04/2019 13:27

Lenders will look at existing debt when considering the max mortgage sum they will offer you and also when considering affordability.

If you refinance your credit cards onto your mortgage please bear in mind that you are stretching this debt out over a very long term and the total cost you’ll pay will be huge.

Blankspace4 · 13/04/2019 13:30

Sorry - what I didn’t very clearly say there is that it may well not need to be a choice between 1) repaying the debt before you get a new mortgage or 2) rolling the debt into your new mortgage.

If you can demonstrate affordability on the new mortgage payment alongside whatever you pay on the CC’s monthly you may just prefer to keep those balances on credit cards to be repaid flexibly rather than rolling into your mortgage or having to reduce your new deposit. Mortgage lenders will look at the min payments so if you pay more, remember to quote what the min is.

Asdf12345 · 13/04/2019 13:34

I second the find a decent broker but argue that if they don’t charge don’t touch them. Expect to pay about £300.

You want someone who can sort out whatever mortgage works out cheapest for you, not just the ones that pay the broker commission.

Original poster

Tinkoschminko · 13/04/2019 13:40

Ah I see blankspace Yeah I wouldn’t be happy with that - the CC debt in itself is only 3K and the overdraft (from our student days) is still 5K. We have however accrued a lot in increased house value.

OP posts:

WBWIFE · 13/04/2019 23:01

We are with Halifax

Currently have 60k equity in the house and are taking 35k out. 25k to clear debts and 10k to move with.

Putting 30k down on a 290k house!

Halifax were fine with us taking he money out and were very happy using this to clear our debts

As we are using the equity to clear our debts they gave us a larger borrowing value as they didnt include the debts in our monthly outgoings, thus allowing us to borrow more overall

florence11 · 14/04/2019 10:33

We use NatWest. They didn't require us to pay the cards off, we ported our mortgage and took out a second one with them to cover the extra borrowing needed.

johnd2 · 14/04/2019 11:08

The solicitor you use will usually act for the mortgage company as well. This means they ensure all the conditions of the mortgage are complied with.
If the mortgage has a condition that you must pay off the debts on completion, the solicitor would have to satisfy themselves it would happen. I'm not sure whether that would be by handling it themselves or just making sure you are clear that it's required.

Original poster

Tinkoschminko · 14/04/2019 12:31

johnd2a Ah okay, that’s great. Thank you. I don’t want to get too far down the road and realise it’s not doable.

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Original poster

Tinkoschminko · 14/04/2019 12:32

WBWIFE and florence Excellent. Thank you! Great to know it can be done.

OP posts:

Original poster

Tinkoschminko · 14/04/2019 12:33

WBWIFE That’s interesting about the monthly outgoings - we’d have so much more disposable once ours are cleared too.

OP posts:

WBWIFE · 14/04/2019 18:55

@Tinkoschminko us too! We currently pay £900 out in finance alone.

All finance currently plus mortgage is £1600, when we clear off our debt and borrow more and have larger LTV we will only be paying 950 mortgage so we will save around £650 a month!!

We are going to over pay the mortgage as much as we can each month to bring the mortgage down quicker

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