Taking out a loan before a mortgage

Martynt74

Martynt74

Martynt74

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Hondon de las Nieves, Spain
Just wondering on peoples thoughts on this.

I currently have 2 loans which combine to £550 a month in repayments.

Loan 1 - £11k remaining over around 45 months
Loan 2 - £6.5k remaining over around 18 months

The loan repayments are perfectly manageable and we've received a mortgage in principle based on the current outgoings.

I've been considering consolidating the loans into one single loan over 5years. This would bring the monthly premium down to £450 a month whilst also leaving a lump sum of around £7k. I planned to use some of this to top up my lifetime ISA in preparation of a house purchase which would give me a 25% bonus. The rest would be stuck into a savings account to give us scope to make changes to any house purchased.

In theory the Mortgage in Principle shouldn't be affected as my monthly outgoings will have reduced by £100 which in theory should potentially increase the maximum potential mortgage.

However i have concerns that recent lending would be seen as negative when the mortgage application gets fully approved

Both the loan and the mortgage would be through First Direct who i bank with. (Current mortgage is also through them)
 
In theory the worst they should do is reassess your affordability if they detect the change.

However, in this area they are generally complete and utter rule followers, even if the rules are daft.

I changed solicitor midway through last purchase as the one recommended initially was terribad. Simple I thought, just advise mortgage co to update records when I appointed new solicitor.
Oh no, offer immediately withdrawn, and could not be reissued until old solicitor confirmed they were no longer working for me. As I had to point out to the Building society numerous times my reason for changing was the old solicitor would never reply to anything, emails, phonecalls, zilch. Eventually I said ok you call the solicitor as I cannot make contact, they tried and eventually said "point made" we will amend details and reissue.

Actually I found another apparently daft thing as well, they may ask to use your current landlord for a reference if you are buying, again they seemed to have no concept that a landlord may see some benefit from not giving the best reference to someone leaving one of his properties to buy their own. What relevance someones existing landlord would have when buying a house is beyond me, apart from for paying the rent, which could easily be evidenced already by the affordability checks.
 
Mercenary Keyboard Warrior said:
In theory the worst they should do is reassess your affordability if they detect the change.

However, in this area they are generally complete and utter rule followers, even if the rules are daft.
Click to expand...

Yeah that was my thought. In theory they should increase the potential mortgage (not that we want to), because my monthly disposable income will increase by £100. This is what the team i spoke to also confirmed.

In practice however when it comes to turning that offer into an approved mortgage things could be very different.

A big point is to get it to stuff into the LISA as it's effectively a free grand towards the house.
 
I can only offer my experience from being a FTB in 2013 - we HAD to have zero debts, before the mortgage would be approved.

At the time I had a couple of loans and cards, my Wife had a card, with debts totaling around 20k for both of us - all of which was perfectly manageable, and had at most 3 years left to run. Both myself and my wife were employed, and all credit searches showed that we were both at the highest rating, with nothing in either of our pasts that would be problematic. The only thing we didn't have, were savings.

We had several meetings with Natwest during the process, and on the visit prior to approval, they found that although we had clear the debts - one card still had a shade over £140 on it; and because of this, the mortgage would not be approved!

Back then it was pretty strict, and we had to go through in excess of 30 pages of questions/checks too...
 
What will be your LTV ratio? Might be worth working out whether reducing the LTV and using the excess mortgage to pay off the existing loans would work out better? Mortgage interest rates are very low at the moment and I would presume lower than the bank loan repayments.

You could then overpay the mortgage by £450-£500 a month (the amount that you're currently paying on the loans) so that they are still paid off over the current loan length.
 
Scort said:
I can only offer my experience from being a FTB in 2013 - we HAD to have zero debts, before the mortgage would be approved.

At the time I had a couple of loans and cards, my Wife had a card, with debts totaling around 20k for both of us - all of which was perfectly manageable, and had at most 3 years left to run. Both myself and my wife were employed, and all credit searches showed that we were both at the highest rating, with nothing in either of our pasts that would be problematic. The only thing we didn't have, were savings.

We had several meetings with Natwest during the process, and on the visit prior to approval, they found that although we had clear the debts - one card still had a shade over £140 on it; and because of this, the mortgage would not be approved!

Back then it was pretty strict, and we had to go through in excess of 30 pages of questions/checks too...
Click to expand...

That's insane, we remortgaged with Natwest few years back and had combined debt of around £9k - they were happy to loan us extra to pay it off and add it to the mortgage!
 
kinobestew123 said:
What will be your LTV ratio? Might be worth working out whether reducing the LTV and using the excess mortgage to pay off the existing loans would work out better? Mortgage interest rates are very low at the moment and I would presume lower than the bank loan repayments.

You could then overpay the mortgage by £450-£500 a month (the amount that you're currently paying on the loans) so that they are still paid off over the current loan length.
Click to expand...

On the current expectations we'll be around 73% (75k deposit for 280k house).

I did consider rolling the loan into the mortgage which wouldn't change the LTV too much, but the difference in interest is minimal.
 
Maccy said:
That's insane, we remortgaged with Natwest few years back and had combined debt of around £9k - they were happy to loan us extra to pay it off and add it to the mortgage!
Click to expand...

I concur, it blew us away! Maybe it was because this was our first home, so they had to be extra rigorous or something?

Sorry to hijack the thread, but we'll be at the end of our fixed term later this year, so will be looking to remortgage - would you mind Trusting me a bit of information on your experiences, just as a real-world heads up of what to expect; if you don't mind of course.
 
Hijack away. I spoke to First Direct and have gone with it as they've confirmed it wouldn't affect my eligibility for the mortgage (spoke to 3 people now!)

Remortgaging can be as easy or difficult as the lender wants to make it. Although if you stay with the same lender and don't change the amount/term then it's very straight forward. We tend to stick with FD and just move to the current rate as they're always competitive.
 
Marvt74 said:
Yeah that was my thought. In theory they should increase the potential mortgage (not that we want to), because my monthly disposable income will increase by £100. This is what the team i spoke to also confirmed.

In practice however when it comes to turning that offer into an approved mortgage things could be very different.

A big point is to get it to stuff into the LISA as it's effectively a free grand towards the house.
Click to expand...

Did i misunderstand when you said the current mortgage was with first direct.
Do you mean the first mortgage offer?
Or do you have an existing mortgage that you want to change after consolidating the loan?
 
Sorry if not clear.

We have an existing mortgage with First Direct for 69k

We’re in the process of looking for a new house. The plan is to port the existing mortgage to the new property which will have a mortgage of around 210k. This has been agreed in principle.
 
I do not think you can use a lifetime isa towards the mortgage.
Check it out, i though it was only first time buyers.
Any lifetime isa contribution will be locked up until you are 60.
Be careful on this.

Else do the consolidation if it both shortens the term and the overall amount you have to pay back.
 
I got initially refused a mortgage about 10 years ago, with 2K outstanding on a personal loan used to buy the car. I'd kept the loan as the interest payments were lower than what I was getting with the cash in savings, but the bank didn't see it that way. So paid the loan off and it went through...
 
Our bank advised us against doing something similar, just to be on the safe side.

We are remortgaging to drum up extra funds for a house extension, but we also want a small short term personal loan for other things. Both loans will be with NatWest but they advised us to wait until the mortgage was fully agreed before formally applying for the small loan, for credit check reasons. Affordability isn't an issue but (in her words) the credit check for the mortgage is more "intensive" than that for the loan so best to get that out of the way first.

As suggested, speaking to your bank would be the best idea.
 
Destination said:
I do not think you can use a lifetime isa towards the mortgage.
Check it out, i though it was only first time buyers.
Any lifetime isa contribution will be locked up until you are 60.
Be careful on this.

Else do the consolidation if it both shortens the term and the overall amount you have to pay back.
Click to expand...

I’ll double check but fairly sure it’s for any house buyers not just first timers.

It can’t be used towards the mortgage but can be used to increase our deposit towards the new house.



Edit - Nope you’re right. First timers only. Will pull my other savings out of it as I believe that can be done penalty free until April.

Bummer :(

Edit2 - Seems I can still use it as the existing house is in my wife’s name only.
 
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