Car finanace and Mortgages?
Car finanace and Mortgages?
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Easty-5

Original Poster:

1,423 posts

206 months

Wednesday 31st August 2011
quotequote all
Simple question (I hope) for someone. Will having car finance have a detrimental effect on a first time buyer applying for a mortgage? Are you likely to be offered a much smaller mortgage?

For talking sake lets say the joint income of the couple applying for a mortgage is 45k and the car finance is 200 a month for 5 years. With a deposit of circa 20-25k are they likely to get a mortgage for 150K?

Toro Rosso

187 posts

171 months

Wednesday 31st August 2011
quotequote all
Not sure whether they will get the mortgage, though I presume this will depend on each individual bank's criteria.

The loan will have an impact - it will show as part of their credit score (could be good as shows a history of making repayments) and will affect the 'affordability' of the mortgage they apply for (not so good, eats up net income each month available for loan repayments).

Sarnie

8,233 posts

225 months

Wednesday 31st August 2011
quotequote all
Easty-5 said:
Simple question (I hope) for someone. Will having car finance have a detrimental effect on a first time buyer applying for a mortgage? Are you likely to be offered a much smaller mortgage?

For talking sake lets say the joint income of the couple applying for a mortgage is 45k and the car finance is 200 a month for 5 years. With a deposit of circa 20-25k are they likely to get a mortgage for 150K?
Yes, that wouldn't be a problem.

Easty-5

Original Poster:

1,423 posts

206 months

Wednesday 31st August 2011
quotequote all
Sarnie said:
Yes, that wouldn't be a problem.
Yes it would have a detrimental effect or yes they should be able to get a mortgage with the figures stated?

walm

10,632 posts

218 months

Wednesday 31st August 2011
quotequote all
I am sure Scotal will have the definitive answer.
My take is that they WILL take the car finance into account.
So if you had NO finance and they were willing to offer 4x your salaries then you could borrow £180k.
With the finance they haircut your "effective income" since you obviously have less ability to pay the mortgage than someone without that debt.

So if your net pay was c.£2,500 they will take off the £200 on finance making it £2,300.
So you have the equivalent income of someone on = 2,300/2500 * £45,000 = £41,400.
Therefore, on the same multiple (4x) you could borrow c.£165k.

scotal

8,751 posts

295 months

Wednesday 31st August 2011
quotequote all
As said, they will take it into account, but on the figures given they should be ok.
The only caveat to that is how strong their credit score is by the lenders measures.

Easty-5

Original Poster:

1,423 posts

206 months

Wednesday 31st August 2011
quotequote all
scotal said:
As said, they will take it into account, but on the figures given they should be ok.
The only caveat to that is how strong their credit score is by the lenders measures.
Well, I'd like to think I had a decent credit score but you never know. I have had a small loan in the past (5k) and paid it off 2 years early. I have had a few credit cards and always paid them off. I have never defaulted on anything. Currently I have no debt at all.

I am just debating whether i should wait a few years until I have a mortgage before going down the car finance route, or whether I can do it now without jeopardizing my chances of getting a mortgage.

1 part of me says that the £200 a month on a car could be an extra £200 saved towards a deposit but another part of me says that with a newer car then repair bills, MOT costs etc should be much smaller so in the long run it might be a better idea.

I have always intended on getting a new(ish) car once I had sorted out a mortgage etc but I have just sold my car so have approx 3k to buy something with or use as a deposit on something newer around the 10k mark.

Toro Rosso

187 posts

171 months

Wednesday 31st August 2011
quotequote all
I find it hard to fathom that a new or newish car could be cheaper than running a cheaper/banger car. Think about it this way - repairs are a possibility, depreciation and interest on finance is a certainty.

I am not saying don't do it, just to realise you are doing it because you want to not because it is cheaper. Similar logic applies when comparing whether or not to save for a deposit or pay finance on a car, the deposit is more sensible but will yo be happy driving a cheaper car?

Easty-5

Original Poster:

1,423 posts

206 months

Wednesday 31st August 2011
quotequote all
Toro Rosso said:
I find it hard to fathom that a new or newish car could be cheaper than running a cheaper/banger car. Think about it this way - repairs are a possibility, depreciation and interest on finance is a certainty.

I am not saying don't do it, just to realise you are doing it because you want to not because it is cheaper. Similar logic applies when comparing whether or not to save for a deposit or pay finance on a car, the deposit is more sensible but will yo be happy driving a cheaper car?
Yea I know exactly what you are saying. I think I am trying to justify it to myself. I would be more than happy driving about in a cheaper car for now. I am just really stuggling to find something decent. Getting on the property ladder is the most important thing for me at the moment, plenty time to pay for cars later in life. Don't get me wrong, I would love to drive about in a new(ish) car that has the safety net of a warrenty and not having to worry about any imminent failures. I have to be realistic though. I can't have everything.

To be honest, getting a car on finance is the last resort, I just wanted to know whether it will have a negative effect on my mortgage application.

Toro Rosso

187 posts

171 months

Wednesday 31st August 2011
quotequote all
Well on the basis you can leave with the cheaper car I would do that and dtart saving the remaining money. If a nasty repair does come up you can alsways use some of the money you have saved if you have to.

walm

10,632 posts

218 months

Wednesday 31st August 2011
quotequote all
I have a pet hate with car finance.
Every way I look at it, it is simply a con that car companies employ to sell cars.
Sure you can "afford" the car - but you are spending way more than you really should owing to the crippling depreciation on a new car.

If you can find something in the 5-7 year old bracket to buy outright or even with a 3rd party warranty if you are that worried... you will save a bunch of ££ IMHO.

Plus you can buy a bigger house.

I simply hate the thought of spanking nearly 10% of your NET income on car depreciation.
(£10k car down roughly 25% per annum = £2,500 = c.£200 per month.)

I know this is PH and we should all aspire to own something that costs £10k to fix if it goes bang (TVR anyone?)... but sometimes prudence is a virtue.

scotal

8,751 posts

295 months

Wednesday 31st August 2011
quotequote all
Easty-5 said:
I have always intended on getting a new(ish) car once I had sorted out a mortgage etc but I have just sold my car so have approx 3k to buy something with or use as a deposit on something newer around the 10k mark.
Personally I'd live with the cheaper car now, get in the house and get the car later.
You'd feel a right idiot if you find something that pushes your budget only to find your car makes the mortgage impossible.
(Caveats about the price of property falling as well as rising may follow)