Thursday, 11 February 2016
We help a lot of clients get a mortgage on their first home, sometimes when their high street bank has already turned them down. First time buyers often have other loans and credit facilities, and these can cause a surprising amount of difficulty when trying to get a mortgage.
One of the most common causes of these problems is the dreaded sofa loan. Many people have these – it is easy to go into a showroom and get furniture on credit, often on 0% finance. However, it is not commonly understood that for every £50 per month in repayments on a car or sofa loan, the amount of mortgage you can get falls by around £10,000.
For a first time buyer, perhaps looking to get a £50,000 – £100,000 mortgage, this can have a massive impact. We regularly help clients with perhaps £150 per month in sofa loan repayments and £200 per month in car loan repayments. This combined £350pm repayment reduces the mortgage that banks are willing to offer by £70,000. That could make the difference between getting a house and not getting one.
There are ways that this situation can be dealt with, and we rarely fail to find a solution for our clients, but there are some important lessons here for potential first time buyers (and indeed anyone looking to move house).
The main message is to avoid taking on other credit in the run up to a mortgage application. That sofa might look nice, but if you had the choice between buying it, or getting your own home, which would you choose ? Making do with cheaper furniture for a while, and perhaps a second hand car, until you have the mortgage you need, could make a lot of sense.
Whatever financial situation you find yourself in, there are dozens of mortgage companies out there and it is very likely that we can find one to fit your circumstances. If you have too much credit outstanding, we can also advise on how to restructure it to make getting the house you want a reality.