The cost of living crisis may affect your next mortgage application. We have considered how this may come about for some and what steps you should consider.
With the cost of living squeeze on finances, the possibility over the coming months will mean more households may turn to their overdrafts and credit cards to fund their lifestyles. So just how does the use of unsecured debt affect your potential to borrow for a mortgage?
Most lenders have a “debt-to-income” calculation, exceed this level and your overall affordability will be marked down notably. This debt-to-income calculation differs dramatically between lenders also their appetite for the type of mortgage applicant you are. Factors such as your household income or the loan to value of a mortgage application will also play a key factor in any decision.
Things to consider when it comes to the cost of living?
Credit card usage can be specifically sensitive to a mortgage decision. In particular, the level of usage compared to your credit card limit. So, if you are close to your limit or using it for cash advances, it’s highly probable that it will affect your overall credit score. Remember is not also the level of unsecured debt that’s important but the overall percentage compared to your income. This could easily result in a declined mortgage application, which will most likely be at the Decision in Principle stage of an application. Some lenders publish this debt-to-income calculation, so using a trusted mortgage adviser will help to navigate such a pitfall.
Can I re-mortgaging to repay debt?
Re-mortgaging to repay debt is likely to be more common as households feel the cost of living pinch, but this can present its own set of hurdles. Many lenders will set a maximum loan to value for debt consolidation, (usually 80% LTV) but again your mortgage adviser should know this.
With higher levels of unsecured debt expected and a general squeeze on household incomes, it’s inevitable that some people will “drop the ball” on their finances with missed payments, exceeded limits, or unpaid items on their accounts. Such, unintentional lapses will show on your credit file and may affect your mortgage application.
What should I do if I have unsecured debt and need a mortgage?
- Knowing what’s on your credit file is an important stage of any mortgage application. So, before you start, it’s a really good idea to review your latest credit report. The best way to do that, in our opinion, is to download your personal report via Checkmyfile. There are several organisations that offer credit report checks. However, Checkmyfile is the only website we recommend for this type of service.
- Use a mortgage broker who is experienced in helping people like you. This can help you save time, money, and a significant amount of stress. Pinpoint Finance can help you get a better understanding of your financial situation, know which lenders to approach, and limit the impact of a mortgage rejection.
- Get in touch with Pinpoint Finance, we’re a straight-talking team of ex-bankers, we’ve been around the block and seen all eventualities. We’ll tell you as it is and deliver what you need.