mortgage lenders are stricter on debts being paid (Source: www.creditaction.co.uk)
Key facts:
- Client looking to sell current property that they have owned for several years to purchase a larger family home
- Clients had a good amount of equity in their property so would have some spare cash left over once it was sold
- The clients had a few credit cards and a couple of loans that they were looking to pay off with the spare equity once they had sold their old home
- Because the debts were not going to be cleared until after the house was sold, a lot of potential mortgage lenders for their new purchase were not happy to lend them enough of a mortgage until the loans were cleared.
Our client:
Our clients purchased their first home several years ago and had lived there happily. As people do, they had taken out two sperate loans, one for a car and the other for some necessary home improvements in the past. They had also used their credit cards in the past to make some purchases. All credit commitments were regularly paid via direct debit and had never been missed.
Now that their family was growing, our clients wanted to move to a bigger property so decided to sell their current home. Fortunately for them, their property had increased in value by a good amount so if they sold, they would have enough money for a deposit on a new home and some spare equity. They intended to use this equity to clear their loans and credit cards essentially making them debt free apart form their mortgage.
They approached Oportfolio as a local, trusted, and experienced mortgage broker to help with their mortgage. Both clients had a good income so when they found a new home and worked out how much mortgage they would need, it should have been easily affordable for them. However, in recent months, mortgage lenders have become stricter with their lending policies due to the rising cost of living and inflationary pressures.
Several of the lenders that we inquired with as possible options for our client’s new mortgage came back to us to say that they would need to see proof PRIOR to the mortgage application that the debts had been paid off. Without proof that the debts had already been paid off, they would not be willing to lend our clients enough money. Which does not make much sense and is over cautious in our opinion. They also said that because the client had already spent money on their credit cards, they assumed that the clients would continue using the cards in the future and build the debt back up, even if they did clear it.
How did we help?
Luckily for us and our clients, we have access to over 90 different mortgage lenders, and we know who is best for this situation should it cause an issue and who to avoid. We regrouped and researched what each lender’s current stance was on debts being cleared, and we found several high street lenders who would disregard the outstanding debts if it seemed plausible.
For example, if someone had £80,000 worth of debt but only had £40,000 worth of equity available then this would not be plausible. The lender we advised for the client did not require any proof of the loans being cleared and produced an offer for them based on the caveat that they would clear the loans after selling their previous property.
The clients sold their old property, purchased their new home, and immediately cleared all their outstanding debts with the respective lenders as specified by the new mortgage lender. They are now debt free apart from their new mortgage and live in a larger property that suits their growing family better.
What was the rate?
The loan was secured as a capital repayment and interest mortgage on a fixed rate for 5-years at 1.97%. After the fixed period, they would revert to the bank’s 4.24% standard variable rate at which time we will contact the clients to discuss remortgaging on to another new competitive fixed rate.
The overall cost for comparison is 3.60% APRC. The arrangement fee was £999 which was added to the balance of the loan, and early repayment charges were applied. The mortgage term was 35 years.
If you or someone you know is looking to purchase a new property but are struggling to get the lending you need due to outstanding credit commitments, give our friendly advisor team a call today to discuss your options.
