PCP/HP - impact on Mortgage Application

[Chris Hinds]

Currently I don't have any car finance and only a mortgage to my name in terms of actual financial commitments. If I were to take out car finance in the coming few months, would this have much impact on my ability to obtain a larger mortgage in say 2 years time when moving home?

[rfoster]

Chris Hinds said:

Currently I don't have any car finance and only a mortgage to my name in terms of actual financial commitments. If I were to take out car finance in the coming few months, would this have much impact on my ability to obtain a larger mortgage in say 2 years time when moving home?

Not necessarily and it will of course depend on your earnings in 2 years time! The mortgage company will want to see evidence that you can easily afford both loans - and if you've had 2 years paying current mortgage and a hire purchase agreement readily and on time, then it ought to be okay.

Worst case scenario of course would be that you could sell the car in a couple of years if you felt the need to reduce your outgoings.

[Tino]

if there are still payments outstanding, and you are near your max lending criteria it may affect affordability.
It did for me, but luckily it was a work scheme where I was able to just hand the car back.

[Sarnie]

Chris Hinds said:

Currently I don't have any car finance and only a mortgage to my name in terms of actual financial commitments. If I were to take out car finance in the coming few months, would this have much impact on my ability to obtain a larger mortgage in say 2 years time when moving home?

It will reduce your lending capacity.

How much effect it will have will be dictated by your salary, the amount you'd want to borrow and the HP monthly payment.

[Chris Hinds]

Thanks for the advice... I don't expect to be hugely leveraged in a couple of years time, maybe 4x my salary and 3.5x household maximum so hopefully should all be ok.

[northandy]

It used to be that mortgage companies would take youthful monthly payments on finance, gross them up for a year then knock that off your earnings for the affordability multiplier.

So if you had car finance of £500 a month (6,000 per year) and were earning 50k a year, your mortgage multipier would be based on £44k

Well that's how it was before mortgage companies cared if anyone could afford the payments.

[Targarama]

Chris Hinds said:

Thanks for the advice... I don't expect to be hugely leveraged in a couple of years time, maybe 4x my salary and 3.5x household maximum so hopefully should all be ok.

4x isn't a lot in your eyes? It will be if rates go up.

<Broken record>
Why not buy a cheaper car for 2 years then buy a snazzy expensive one once you've got the house? It will also free up some more cash for your downpayment.
<<end>>