Car loan effect on a remortgage
Discussion
Sorry for such a dumb question but I’ve never been in this position before, up to now, I have never financed a car before.
I was hoping to remortgage first then replace the car, but now the car will have to come first thanks to being written off (non fault).
What effect on the remortgage will having a car loan on record do? With the figures I’ve been given by the current mortgage company, the car plus new mortgage payments will be about 40% of monthly net salary. I can afford my credit score to drop a little as its very high at present, and still be seen as a good risk.
I was hoping to remortgage first then replace the car, but now the car will have to come first thanks to being written off (non fault).
What effect on the remortgage will having a car loan on record do? With the figures I’ve been given by the current mortgage company, the car plus new mortgage payments will be about 40% of monthly net salary. I can afford my credit score to drop a little as its very high at present, and still be seen as a good risk.
My understanding is that different lenders treat it differently.....(not immediately very helpful)
But that several (and an increasing number) now work out the mortage affordability based on your actual monthly take home (from payslips) and then deduct any big spends (car loans, school fees etc) before then calculating how much they will loan (with some multiple of monthly spare cash used).
This way, a few hundred quid a month on a car payment might have a huge impact on the amount you can borrow. i.e. it's a post tax deduction that when multiplied up reduces the total borrowing amount quite significantly. (e.g. £250 per month x 12 x 5(multiple) might reduce the available borrowing amount by £15K or something)
I'd do the mortgage first if you think you might be pushing the multiples - it'll mean more lenders will be available to you. Buy/borrow a cheap runabout in the meantime as this has zero impact on the affordability.
But that several (and an increasing number) now work out the mortage affordability based on your actual monthly take home (from payslips) and then deduct any big spends (car loans, school fees etc) before then calculating how much they will loan (with some multiple of monthly spare cash used).
This way, a few hundred quid a month on a car payment might have a huge impact on the amount you can borrow. i.e. it's a post tax deduction that when multiplied up reduces the total borrowing amount quite significantly. (e.g. £250 per month x 12 x 5(multiple) might reduce the available borrowing amount by £15K or something)
I'd do the mortgage first if you think you might be pushing the multiples - it'll mean more lenders will be available to you. Buy/borrow a cheap runabout in the meantime as this has zero impact on the affordability.
Celtic Dragon said:
Sorry for such a dumb question but I’ve never been in this position before, up to now, I have never financed a car before.
I was hoping to remortgage first then replace the car, but now the car will have to come first thanks to being written off (non fault).
What effect on the remortgage will having a car loan on record do? With the figures I’ve been given by the current mortgage company, the car plus new mortgage payments will be about 40% of monthly net salary. I can afford my credit score to drop a little as its very high at present, and still be seen as a good risk.
It's impossible to answer accurately without having all of the info to hand.I was hoping to remortgage first then replace the car, but now the car will have to come first thanks to being written off (non fault).
What effect on the remortgage will having a car loan on record do? With the figures I’ve been given by the current mortgage company, the car plus new mortgage payments will be about 40% of monthly net salary. I can afford my credit score to drop a little as its very high at present, and still be seen as a good risk.
A credit commitment will reduce your affordability for sure, but your income maybe sufficient to absorb the reduction in affordability, to still cover your required loan amount.
Have a chat with a broker
Perhaps stating the obvious, but have you considered buying a cheap car for the short term need, and then re-mortgage for an increased amount to release some cash for the car purchase later? Mortgage interest rate will be lower than a car loan, but you need a mortgage that allows flexibility (and self discipline!) to overpay the car loan portion of it so you don't turn it into a 10/20/30 year loan payback period.
As others have mentioned it will very much depend on your personal circumstances, but to add my own personal experience - when we were buying our house in 2021, I was about half way through a PCP, easily affordable and with the mortgage on top would still have been no trouble, however I am self employed (for several years but fairly variable income) and my wife had only just also become self employed (less than 6m prior so as far as they were concerned didn't exist), so we were already working with a fairly slim range of lenders who would touch us.
The mortgage lender we went with were not happy about having any other finance outstanding, even though the PCP is effectively a secured loan (as I tried to argue) and in the end I had to buy out my PCP, since I was still slightly in negative territory, in order to them to give the green light. Probably cost me a few k in the long run, but I would have had to pay BMW FS to 'give it back' to them at that time anyway. I was quite lucky to have had the spare capital at the time though.
I think if you are in a more 'stable' position with lots of mortgage choices, you should be ok - the amount of car finance around these days they can't be rejecting everyone with finance outstanding.
The mortgage lender we went with were not happy about having any other finance outstanding, even though the PCP is effectively a secured loan (as I tried to argue) and in the end I had to buy out my PCP, since I was still slightly in negative territory, in order to them to give the green light. Probably cost me a few k in the long run, but I would have had to pay BMW FS to 'give it back' to them at that time anyway. I was quite lucky to have had the spare capital at the time though.
I think if you are in a more 'stable' position with lots of mortgage choices, you should be ok - the amount of car finance around these days they can't be rejecting everyone with finance outstanding.
Celtic Dragon said:
Thanks gents, I have just emailed my broker.
To me the numbers are workable, but to a lender, maybe not.
Edit: just put all the new numbers into my spreadsheet says I’m at 63% expenditure, verses 50% currently.
Let the broker sort it. Your spread sheet won’t mean anything to a lender.To me the numbers are workable, but to a lender, maybe not.
Edit: just put all the new numbers into my spreadsheet says I’m at 63% expenditure, verses 50% currently.
Edited by Celtic Dragon on Friday 20th December 11:21
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