Are you looking for relevant information on personal debt and what effect it has on getting a mortgage? Well hopefully the following details will give you the required assistance.
It is inevitable that, we will nearly all get in to some form of debt during our lives, so it’s important to keep a firm grip on our expenditure and how much we have to borrow, as it can have a bearing on our credibility and future financial worthiness for credit cards, loans and mortgages.
The once friendly UK high street banks and financial lending institutions have really tightened their belts since the downturn of 2008 and have gone from being very free and easy with loans and mortgages to being extremely cautious in recent times. It’s important to always be honest and totally accurate when you apply for a mortgage and declare any past or present personal debt and defaults, as nearly all of the leading financial lending companies go through one of the major credit reference agencies and it will certainly show up with them.
What happens if you don’t tell the mortgage company about your existing debt?
If you don’t disclose your current debts and commitments this could have an adverse affect on your mortgage application.
How is personal debt viewed by a mortgage lender?
Personal debt can be looked at in two ways from a bank or financial lender. They can view it positively as someone who has previously been given money and has experience with financial responsibility or they can view it negatively: someone who may mismanage or be reckless with borrowed money. It is usually comes down to the criteria that best fits the bank and if you fit that bill then, you may be accepted for a mortgage with a specific bank yet be refused with several others.
How difficult is it to get a mortgage?
There has been continued pressure from the government since the bailouts of 2008 and 2009 for the leading banks and financial lenders to ease their borrowing rules and get lending again and move the economy forward. It certainly has got slightly easier in recent times in the UK to borrow against a home, but there are a few things which lenders will usually always have as part of their criteria and include:
- Your age
- Mortgage deposit
- Annual Salary or income from self employment
- Existing debt and commitments
- Defaults & blemishes on your credit file
- How much you want to borrow
- Worthiness for a mortgage
It can be quite difficult to get a mortgage in the UK if you’re young, a first time buyer or have built up personal debt and even although it may seem unfair, the banks are now only being over protective because of what happened a few years ago when they were too generous and got their fingers burnt.
If you have struggled to get a mortgage from a main lender due to your personal debt then, all is not lost. At The Mortgage Broker we can put your personal and financial details in front of a variety and financial institutions and mortgage lenders to find you a suitable deal to match your financial requirements. Different lenders view personal debt in different ways with some lenders taking a more lenient view than others.
In summary, the majority of mortgage lenders generally deduct the monthly cost of your debt in their lending / affordability calculation and all lenders have a different approach on how they do this. This is best explained by the following simple example of how a lender may look at debt:
- Annual income £35,000
- Monthly cost of debt £500
- £500 X 12 = £6000
- Annual Income £35,000 – £6000 of debt = £29,000
It will be the £29,000 income that will be used by the lenders for either their affordability calculations or income multiple.
If you have built up a personal debt then don’t panic, as you’re certainly not alone with the average UK household owing in excess of £8,000 excluding mortgages and the UK debt bill reaching a staggering £1.500 trillion, so in the grand scheme of things your own debt is minuscule. If you think that, your debt has got out of control then, it’s important to take the required action. Organisations like the Citizens Advice Bureau offer free advice on how to sensibly deal with your outgoings and are always sympathetic towards your needs and there is also the government backed National Debt Assistance and a great facility for giving people solutions to their debt problems and the reduction of their weekly and monthly debt payments.