13 replies to this topic

[zopanueva]

A strange question so not sure if this is the place for this but thought I'd tap into the wise minds I've observed here over the years… Obvioulsy I appreciate no one can give me financial advice but I was just wondering if anyone had any thoughts about something I've missed.

I'm looking to make a house property purchase over the next few months. I'm currently undecided between getting say a 85% LTV mortgage or a 80% LTV mortgage + loan as it seems to lead to a lower overall interest cost.

The benefit of the 80% LTV route relies on being able to get a loan at the best rate. However, equally I don't want to complicate my mortgage application by having a loan there which seems "unaffordable". My question is around timing, which should I apply for first the mortgage or the loan? I'm guessing the application of the first will show up in the credit check for the second. I'm inclined to apply for the mortage first as that is what is most important to me but as I currently don't have a mortgage I'm not sure if that works in my favour with the loan application?

(As an aside I do actually have the savings to make the 5% difference myself but that would wipe out most of my savings which psychologically makes me very nervous. I guess I'm willing to pay a little more interest to maintain access to some cash readily)

[Deddington]

zopanueva, on 10 April 2012 - 16:35, said:

A strange question so not sure if this is the place for this but thought I'd tap into the wise minds I've observed here over the years… Obvioulsy I appreciate no one can give me financial advice but I was just wondering if anyone had any thoughts about something I've missed.

I'm looking to make a house property purchase over the next few months. I'm currently undecided between getting say a 85% LTV mortgage or a 80% LTV mortgage + loan as it seems to lead to a lower overall interest cost.

The benefit of the 80% LTV route relies on being able to get a loan at the best rate. However, equally I don't want to complicate my mortgage application by having a loan there which seems "unaffordable". My question is around timing, which should I apply for first the mortgage or the loan? I'm guessing the application of the first will show up in the credit check for the second. I'm inclined to apply for the mortage first as that is what is most important to me but as I currently don't have a mortgage I'm not sure if that works in my favour with the loan application?

(As an aside I do actually have the savings to make the 5% difference myself but that would wipe out most of my savings which psychologically makes me very nervous. I guess I'm willing to pay a little more interest to maintain access to some cash readily)

Hi and welcome
I understand the comfort factor of having your savings instantly available for that rainy day but unless they are wrapped in and a tax free ISA or the like and you are unwilling to lose the ongoing benefit, I would take the best rate offer and also use your savings. Having to pay tax on the money you earn to pay of the higher loan rate or a loan is expensive borrowing.

If you have a good credit record then getting access to a loan if you needed it would not be difficult especially with the lower LTV on your mortgage.

Clearing debt as fast as possible is always IMO the best strategy for spare cash.

Edited by Deddington, 10 April 2012 - 17:02.

[fuzzyiceberg]

I can only echo Deddington's wise words.  Paying tax on (lower) savings interest while at the same time paying higher mortgage interest is out in my book.  Obviously you need to keep some 'immediate' rainy day day money - you don't want to have to faff about getting a loan if your car needs fixing or something - but otherwise use the savings to reduce the mortgage needed.  Have you looked into 'offset' mortgages?

[zopanueva]

Thanks both. I will look into the offset option a bit more. I have to admit I hadn't given them much thought (assumed they would have much higher interest rates. The added wrinkle is that the savings in question are currently wrapped in an ISA, as well as giving me an emotional comfort their may be a future tax advantage.

On the original question, does anyone have much experience mixing loans and mortgages?

[sl75]

zopanueva, on 11 April 2012 - 16:32, said:

On the original question, does anyone have much experience mixing loans and mortgages?

My own experience was that when I started making mortgage enquiries with an existing loan, the advice received was that the loan should be paid off or substantially reduced in order to improve the affordability rating for the mortgage.

Further, a mortgage lender and/or the solicitor handling the transaction will need to know where the deposit is coming from, and see evidence of this... and if this is from a loan they'll take this into account.

Regarding the ISA savings - my own view is that a cash ISA won't be worth bothering with until I'm within about 5 years of having sufficient funds to pay off the mortgage. Stocks and Shares ISA can be a good route towards being likely to be in a position of being able to settle a mortgage sooner rather than later (but also bears a risk it could take longer if the value of the investments goes down).

[propman]

While I agree that it is not a good idea to have significant idle cash around when borrowing, ISTM that there are 2 reasons that this might be appropriate:

1) Most people underestimate the initial costs of a new house. There are always extra curtains, furniture that doen't fit as intended, extra appliances etc. Hence I would say that a few thousand pounds beyond your "rainy day" fund is a good idea. Particularly if any excess over that required can be repaid at modest cost.

2) If you have variable income (eg contractor, significant commission/ bonus payments or overtime etc.) then having funds to smooth drops in income is worth the extra cost to avoid missing payments and harming your credit rating.

As for how significant 5% of a house is, that depends where you are buying and might easily be a reasonable "rainy day" fund. If you are worried about the impact of the loan on affordability, why not apply on a comparison site anonymously "declaring" the loans and see if these make a difference?

Best of luck.

- PM

[zopanueva]

Once again, thanks for all the responses.

Adding in a loan doesn't seem to change the availability of the mortgage product on comparison websites. I also agree with allowing for unexpected costs. A previous colleague once recommended to always have 6months net pay in ready cash for emergencies. But another problem which might impact on the mortgage has arisen.

While I have you attention, has anyone ever been declined opening an online savings account?
They will not tell me why other than say I do not meet their criteria (I sent the minimum investment amount which they have now refunded). And I would not meet it indefinately. I'm now concerned that this will impact on a future mortgage application. My credit rating should be fine, though I can't see how that would impact on opening a savings only account.

[PoohBah]

zopanueva, on 13 April 2012 - 16:21, said:

While I have you attention, has anyone ever been declined opening an online savings account?
They will not tell me why other than say I do not meet their criteria

It's never happened to me.  Unless you failed to meet a specific condition of the account (I imagine you have read and re-read the T&C?), the only things that I can think of offhand are that something flagged a warning in their "Know your customer" checks (which they must carry out to comply with money laundering legislation) and they chose to play it safe; maybe they don't see you as somebody who will prove profitable; it is also conceivable that somebody else with similar details and a naughty past has been incorrectly matched to you (a past occupier with same surname, for instance).

No doubt others will have other suggestions.  You might try Googling "declined online savings account"; there are many who have had a similar experience, with some discussion on the Moneysavingexpert site.

[ayshf_m]

For info Intelligent Finance allow you to offset ISA's.

[chilterncom1]

ayshf_m, on 14 April 2012 - 22:23, said:

For info Intelligent Finance allow you to offset ISA's.

... ... but no longer offers new mortgages

[zopanueva]

chilterncom1, on 15 April 2012 - 10:54, said:

... ... but no longer offers new mortgages

That's a shame.

[zopanueva]

PoohBah, on 13 April 2012 - 19:35, said:

It's never happened to me.  Unless you failed to meet a specific condition of the account (I imagine you have read and re-read the T&C?), the only things that I can think of offhand are that something flagged a warning in their "Know your customer" checks (which they must carry out to comply with money laundering legislation) and they chose to play it safe; maybe they don't see you as somebody who will prove profitable; it is also conceivable that somebody else with similar details and a naughty past has been incorrectly matched to you (a past occupier with same surname, for instance).

No doubt others will have other suggestions.  You might try Googling "declined online savings account"; there are many who have had a similar experience, with some discussion on the Moneysavingexpert site.

Thanks. When I googled it came up with people who have had credit problems in the past being declined which isn't my case. My credit report should be fine (but I have ordered a copy just to double check).

However, I found your profitability point interesting. Last year I sucessfully claimed back the PPI I was forced to take on an old loan, so I am now wondering if it is to do with that. If the credit report does not show anything I'll probably try FOS as the only response I get from the bank in question in writing is: "We have returned your funds as your application for a [] account was unsuccessful. We are unable to provide any further details."

Over the phone they added my inability to meet their criteria is permenant (so it is not related to my recent move or receipt of a lump sum). Intriguing and concerning.

[PoohBah]

zopanueva, on 15 April 2012 - 21:01, said:

Over the phone they added my inability to meet their criteria is permenant (so it is not related to my recent move or receipt of a lump sum). Intriguing and concerning.

Indeed; but a lump sum could, depending on the sum involved and actual circumstances (which you know but we do not - and I'm not asking!), be seen as a potential money laundering issue.  If that is the case here, the company would be very wary, particularly as the FSA recently imposed a heavy fine (I think it was on Coutts of all people) for not asking sufficiently detailed questions, even though no dodgy transactions actually took place.

[zopanueva]

PoohBah, on 15 April 2012 - 22:15, said:

Indeed; but a lump sum could, depending on the sum involved and actual circumstances (which you know but we do not - and I'm not asking!), be seen as a potential money laundering issue.  If that is the case here, the company would be very wary, particularly as the FSA recently imposed a heavy fine (I think it was on Coutts of all people) for not asking sufficiently detailed questions, even though no dodgy transactions actually took place.

Nothing dodgy I promise! I sold a house and did not immediately buy somewhere new.