Tis the season for overindulging, be it on food, drink or presents for friends and family!
It’s easy to lose control of your finances at Christmas, promising yourself you’ll sort it in 2023, but if you’re looking to move or remortgage next year you’ll need to make sure you’re in the best possible position.
Luckily for you, Beewise are here to help! This month’s blog post is all about how loans can impact your borrowing for a mortgage, sensible ways to spend on credit cards, and best practise to avoid bad credit.
Plus, if you’ve considered borrowing extra on a mortgage to pay off any existing debt, we’ll tell you the plus and minus points. So give it a read, get savvy, then get out there and spend wisely!
Does having loans and credit cards affect your mortgage application?
The short answer is yes!, Owing money on a loan or credit card, or any short term debt like car finance isn’t necessarily a bad thing, but it will impact how much you could borrow towards a mortgage.
When your Beewise mortgage advisor calculates affordability, any monthly commitments are considered and - dependent on the payment amount and balance outstanding - could reduce how much a lender will look to offer you.
Each situation is different though and we’ll also take into account how many payments are left, whether that balance will be cleared before you take out the mortgage, and let you know whether it’s worth clearing your debt with any savings.
Check out our ‘How Much You Could Borrow’ blog post for more information, or contact us here to find out how much you could get towards a new home!
Essentially, if you’re planning to buy a house or remortgage in 2023, we’d recommend not taking out any new loans, or spending too much on credit over the festive season.
How can you avoid ruining your credit score?
While some people think taking out finance is a good way to build up your credit score, it can also have a negative impact if you don’t manage your finances properly.
Taking out a credit card with the intention of clearing it each month can be a good option, but if you don’t manage to do that and the debt builds up – common over Christmas and January – it can become a financial burden.
Keep track of any spending through a budget planner or spreadsheet, as small purchases here and there can easily add up. There are lots of free templates to download online, and you’ll thank yourself in the new year!
With options like Klarna and Paypal Credit more readily available, it’s easy to lose track of how much you owe until those big bills come through. So, staying on top of your outgoings and setting sensible spending limits is our top piece of advice.
With credit, we’d also recommend not spending right up to your limit – around 90% is ideal as it shows a lender you’re capable of staying within budgets.
The number one rule is to always make your monthly repayments on time. Missing a payment will instantly have an impact on your credit file, and continuing to miss payments, or not pay any arrears, could lead to a default or even a CCJ.
These all take 6 years to drop off your credit file, and as they’ll be picked up on an initial background search, it’ll impact the number of banks and building societies willing to lend you money towards a mortgage.
Our last tip if you’re looking to take out a mortgage is to not go over any overdraft limits, and preferably not use an overdraft at all.
From a lender’s perspective, this looks as if you’re unable to manage your monthly spending, and can be looked on unfavourably.
Although you might have money in another account to cover it, it’s wise to keep your spending habits squeaky clean, even over the Christmas period!
If you have got a low credit score there are still options out there for you, and your local Beewise advisor can still help out. But, keeping your score as high as possible should always be the goal!
Can I add my current unsecured debt onto my mortgage?
We often get asked if it’s a good idea to remortgage to pay off debts, taking out a new mortgage and adding any loans or credit card balances onto the old one.
There are pros and cons to debt consolidation, and one positive is that you won’t have to pay the higher interest rates charged for credit cards and some loans.
You’ll often be able to lower your monthly outgoings too, which is a bonus. By consolidating your debt you’ll just have one payment going out, and there won’t be a temptation to borrow more, like with a credit card.
But while you could make short term savings, over the longer term you may end up paying more. This is because you’ll be extending the end date of the initial credit, and you’ll also be transferring previously unsecured debts to a mortgage which is secured on your home.
If you’re able to take advantage of lower interest rates with a mortgage though, you’ll be debt free in a much shorter time overall. And, if you overpay on your mortgage from time to time, this’ll reduce the time it takes to pay it off.
There are restrictions with the amount you can borrow when taking out a mortgage for debt consolidation, so chat to Beewise first. That way, we can give advice tailored to your specific situation.
First and foremost though, we’d always recommend staying within your spending limits where possible – the quickest and easiest way to reduce your monthly outgoings!
Other ways Beewise can help you!
Beewise are about more than getting the most suitable mortgage for your needs. Voted Best Mortgage Advisor Office in the UK at the 2022 ESTAS Awards – read all about it here! - we’re on hand throughout your homebuying or remortgaging journey, giving expert advice from start to finish.
Plus, we work with lots of different banks and building societies, so your local Beewise advisor will have access to a whole host of deals, and we know the lending criteria required in different situations.
Whether you’re self employed, have less-than-perfect credit, or just want the most suitable deal available, we’re here to do all the legwork and make the process as stress-free as possible.
We can also be flexible around your busy schedule, offering same day appointments evenings and weekends. For more on why you should use a Beewise mortgage advisor, check out this 2 minute read!
If you’re looking for award-winning mortgage & protection help, get in touch with your local Beewise FS Ltd advisor here or call 01934 204841. And, click here to check out our 190+ 5 star customer testimonials!
Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage.