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(There will be a part 2 in a few months).
So, we bought our house as first time buyers and are hoping to move within a year. Unfortunately (due to my mid life crisis, giving up a job and studying again) we have accrued some debts.
We have enough equity to pay off the debts and have a decent deposit for the next move. It’d also be nice to have some cash for potential doer-upperer houses too.
However, can I choose to do that? Do banks allow you to choose how much of your equity you wish to use?
Thanks
Financially inept of Derbyshire
Yes, when you apply for the mortgage you just say how much you want to borrow. Depending on the bank you might be able to do this directly, or you might need to just reduce the figure you're putting down as the deposit in order to get a larger mortage.
Be careful doing this because the rate you get depends on the LTV ratio and it might be cheaper to hold off if you're sitting on the boundary. Nationwide, for example, offers a separate mortgage for stuff like solar panels at a cheaper rate.
Think you need to speak to a mortgage advisor.
The 'some debts' may even stop you getting a new mortgage at a decent rate depending how large the debts are.
Affordability tests will have changed since you first bought too due to rising living costs.
The ‘some debts’ may even stop you getting a new mortgage at a decent rate depending how large the debts are.
Yep, this is also a concern. It’d be several years of repaying debts from earnings before we could clear them but we desperately need to move.
It would seem really silly if we have to sell up, rent at extortionate rates, pay off debts and then buy again …
Why mention what you're planning to spend it on at all?
"From the sale of my property, I'd like (say) £50,000 of the equity to go towards the deposit on the new place and the rest in my bank account. Love and kisses, RRR."
It's exactly what I did, the change paid for solicitors and estate agents with a modest pot left over for paint and Ikea. Though I didn't have a mortgage on the one I was selling.
Why mention what you’re planning to spend it on at all?
If you've significant unsecured debt, the servicing of that will need to be accounted for in the affordability calculations.
If you're going to pay it off, they can probably remove it from the monthly budget figures (not had to go through this rigmarole for a while).
Using a mortgage broker is something to consider, especially if the unsecured debts will impact the affordability calculations.
They should know the lenders eligibility criteria, and can advise you accordingly, and they can position the application to exclude debts that will be repaid from equity. They should know what rates you'll be likely to offered also.
I don't usually like involving brokers, but they're great for people with 'non-standard' circumstances.