Mortgage capacity - impact of a car lease vs a loan

Kemik

Kemik

Kemik

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Hi guys,

Looking to finance a car. The lease and the loan payments are pretty much identical so I am weighing up other factors such as risk of residual values, flexibility between the two, etc.

Does anyone know if using a lease is treated differently when analysing your credit capacity for a mortgage vs using a loan? In my mind, if you pay the same amount for a lease and a loan then you still have the same capacity for a mortgage based on your remaining disposable income, however banks aren't always logical!

Thanks
 
Kemik said:
Hi guys,

Looking to finance a car. The lease and the loan payments are pretty much identical so I am weighing up other factors such as risk of residual values, flexibility between the two, etc.

Does anyone know if using a lease is treated differently when analysing your credit capacity for a mortgage vs using a loan? In my mind, if you pay the same amount for a lease and a loan then you still have the same capacity for a mortgage based on your remaining disposable income, however banks aren't always logical!

Thanks
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Nobody will be able to answer this.

I'd go for loan because then you can sell the car if need be. With a lease if something happens you will need to buy yourself out of the contract and you have nothing to sell.
 
As above, i'd go for a loan, purely because whilst the repayments will be the same i would expect the overall cost of ownership to be much less unless it's a particularly spectacular lease deal.

For a mortgage i would expect them to be the same, they just look at affordability and income/expected expenses.
 
To give an idea, it is a Tesla Model 3 so resale is very difficult to judge. After 3 years the loan would still have 51% left vs the cost of the car. PCP in Germany (not available in UK) predicts a residual/resale value of around 47% after three years. This therefore makes the lease around £1k cheaper. In case that changes anyones mind.
 
Kemik said:
To give an idea, it is a Tesla Model 3 so resale is very difficult to judge. After 3 years the loan would still have 51% left vs the cost of the car. PCP in Germany (not available in UK) predicts a residual/resale value of around 47% after three years. This therefore makes the lease around £1k cheaper. In case that changes anyones mind.
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Brand new car?

Tbh if money is that tight you have to ask about maximum mortgage capacity then a brand new car is the last thing I would be looking at. What's wrong with a 3 year old Toyota Auris?

When I bought the bank was willing to loan me an additional 25% of what I did.
 
Psycho Sonny said:
Brand new car?

Tbh if money is that tight you have to ask about maximum mortgage capacity then a brand new car is the last thing I would be looking at. What's wrong with a 3 year old Toyota Auris?

When I bought the bank was willing to loan me an additional 25% of what I did.
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Who said anything about money being tight? I just don't have £40k cash in the bank so need a way to fund it. I want to keep some head room on my mortgage capacity for the future.
 
Kemik said:
Who said anything about money being tight? I just don't have £40k cash in the bank so need a way to fund it. I want to keep some head room on my mortgage capacity for the future.
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Well it is tight if you can't buy the car and afford the mortgage you want.

Buy the home first or buy a cheaper car.
 
Quartz said:
Should not insurance cover that?
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what insurance?

home insurance if his roof needs replacing? or what if his boiler goes kaput in the middle of winter?

i'm talking about should something happen and he needs to get a hold of several £K. He could always sell the car if he's bought it using a loan. Then use that money to pay for the roof. With a lease he's got nothing to sell and if he hands it back they will still want him to buy himself out the contract.
 
Psycho Sonny said:
Well it is tight if you can't buy the car and afford the mortgage you want.

Buy the home first or buy a cheaper car.
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I have a home. I'm just buying a more expensive car, so want to make sure I'll be okay when I remortgage. I have more than enough buffer on disposable income (the total car costs will be the same, mainly because I won't be spending £200 a month on diesel any more), however I'm not 100% sure how banks work out affordability and if it is all based on disposable income or based on a total loan capacity if that makes sense?
 
Kemik said:
I have a home. I'm just buying a more expensive car, so want to make sure I'll be okay when I remortgage. I have more than enough buffer on disposable income (the total car costs will be the same, mainly because I won't be spending £200 a month on diesel any more), however I'm not 100% sure how banks work out affordability and if it is all based on disposable income or based on a total loan capacity if that makes sense?
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Should have zero effect on a remortgage either way then.
 
Quartz said:
The car insurance. Which you buy to cover just such a scenario.
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I assume he meant something financial happens where he needs access to money. With a loan you can sell the car, repay the loan and have additional money each month. With a lease he's locked in with no way to adjust his outgoings.
 
How do leases show up on a credit report? As a loan shows up as X amount of debt whereas things like recurring payments are just that and don't actually show up as any debt.

Mortgage providers probably don't care though as I'm sure they look a bit further in to it than that.
 
UnworthyBean said:
How do leases show up on a credit report? As a loan shows up as X amount of debt whereas things like recurring payments are just that and don't actually show up as any debt.

Mortgage providers probably don't care though as I'm sure they look a bit further in to it than that.
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It may ;) show up on his bank account which he will have to provide when applying for a mortgage.

It will also need to be declared as a dedicated outgoing that he is not willing to give up when doing his affordability checks.
 
It'll just show up as a loan or hire purchase (same thing basically), does on Equifax/Experian anyway which is what most lenders will use, either/or often both.

And no it won't make any difference to a mortgage application if the payments are the same.

As for the "have a go" financial advice being banded around in this thread, I'm staying way out of that :)
 
Are you actually remortgaging? You are only remortgaging if you are taking a mortgage from another lender. If you are switching rates with your existing lender that's a product switch and most lenders don't carry out any status checks for these.

Lenders generally assess affordability to determine how much they will lend so if the monthly outgoing is the same it shouldn't matter. They never ask how long the commitment is for. However they will look at your total outstanding credit as part of the scoring process to determine if they will lend at all. Contract Hire/Lease agreements will be shown on your credit agreement with an outstanding balance of the total of the payments due. A loan or PCP will show the full capital amount outstanding on the agreement. How much weight the specific lender gives to this is up to them, but generally a lease looks more favorable from a scoring point of view.
 
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