- August 27, 2023
- Posted by: legaleseblogger
- Category: Related News
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Am I in Trouble? Seeking Advice on Debt and Buying a House in the Future
TLDR; Currently in debt and hoping to purchase a house in 2025. Feeling overwhelmed and seeking guidance on the situation.
[Original post](https://reddit.com/r/HousingUK/s/nrlBfnKaoP)
**ETA, TA: Explaining the Car Situation and Concerns**
My apologies, but I noticed that many people are fixating on the car and assuming that I’m broke and unable to afford it. However, my main concern isn’t the debt itself, as I have the means to repay it. Originally, I planned to pay it off gradually over five years, but now I’ve decided to clear it within 1.5 years. What I’m worried about is how this level of debt will appear to a mortgage company, especially considering the high credit card utilization within 18 months of applying for a mortgage. It’s important to note that my debt is not unbearable by any means, and I can extend my current job if I need more time. This change in plans is due to my laziness, and now I’m facing the consequences. Ultimately, my primary concern is how this financial situation will be perceived by a potential mortgage provider.
*ETA – To clarify, the debt is not crippling, and I have decided to pay it off in a fraction of the time originally planned. If I need more time, I can continue in my current job. My lack of proactive financial planning and change in plans have resulted in these consequences. However, my main worry is the impact on my mortgage application, specifically the high credit card utilization ratio due to laziness, and an aim to have no debt (except car loan) in the next 18 months.*
Providing Some Context
I am currently in my 30s and have spent most of my adult life in the military, earning a decent salary. On the other hand, my partner hasn’t been able to earn much due to health reasons and childcare responsibilities (please refrain from judging). My total debt amounts to about £7,000, excluding the car loan. If we include the car loan, the debt reaches around £19,000. The majority of the debt is spread across three credit cards, all with annual percentage rates (APRs) ranging between 25% and 29%. As things stand, I expect to clear the debts by 2025, although I don’t intend to continue paying at the same rate if I can avoid dipping back into them after making significant repayments. By the time I apply for a mortgage, the car loan should be paid off by August 2026, leaving me with only £7,000 in debt. Importantly, I have not missed any payments, and the only concern is the high credit card utilization ratio.
Our Current Household Income and Future Prospects
Due to my spouse obtaining a job, our household income now stands at approximately £50,000. With my anticipated salary increases, this figure could rise to £54,000. If my partner’s career progresses as planned, our combined income could potentially reach £65,000 to £70,000. It’s worth mentioning that my partner has a good credit history since they didn’t have much credit in the past but have recently taken on some bills.
Desired House and Deposit
We have our sights set on a £230,000 house, and we are aiming to save a deposit of around £17,000. However, there’s a possibility that our parents might gift us additional funds, although we are not banking on that assumption.
Seeking Mortgage Approval: Our Chances and Concerns
Now, let’s address the core issue. What are the likelihoods of us securing a mortgage assuming that I can clear all debts (excluding the car loan) by August 2024? This would give us six months of relatively healthy bank accounts and debt records. Personally, I fear that the mortgage provider will take one look at our financial situation and immediately reject our application. I genuinely desire to leave the military, but the housing situation is forcing me to stay, while my own irresponsible spending habits have played a significant role in bringing me to this point. Furthermore, once I transition out of the military, it’s highly likely that I’ll experience a pay cut. However, I assume that this shouldn’t affect the mortgage provider’s decision once we successfully obtain the mortgage, as long as we continue to meet our repayment obligations. Are they allowed to penalize us or withdraw the mortgage approval after the fact?
Honest and Non-Judgmental Advice Needed
I would greatly appreciate brutally honest (yet preferably non-judgmental) input and advice regarding our chances of securing a mortgage. Furthermore, any guidance on how to improve our financial situation would be highly welcomed.
Thank you in advance for your assistance and insights!
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Lots of focus here on your car and credit card APRs – but the 17k deposit you mention, where’s that coming from? If you have savings, I’d use those to pay off all or at least some of those high interest debts – and then really go for it, over the next year or two, building up a bigger nest egg without having to fork a sum over in debt interest every month.
Also, 17k deposit is low for a 200k+ house in my book. You should be angling for at least 10% deposit. On your current joint income, if you squash your debt and pare back those expenses ruthlessly, I think you can do this by 2025. Do it do it!
I’m also UK military – can you speak to a Forces debt management charity? If you’re Royal Navy the White Ensign Association will help you find ways to clear your debt quicker.
Also speak to your unit Welfare Officer or Chaplain – they can help too confidentially.
The car and finance option makes you sound like you’re stuck like a lot of JNCO and SNCO with something a bit flash tou couldn’t really afford and it’s pinning you in SFA. Can you take a lower APR personal loan to clear the ridiculously high APR car loan?
Finally, with respect to a mortgage, search for Forces Help to Buy on your MODNET laptop. I think all the details are in a JSP (you might be able to find it on the gov.uk website too?)
This will release up to £25k (depending on your salary but it sounds like you should be eligible earning 50k+) for a house deposit. It’s loaned at pretty much zero percent APR and comes direct out of your wage until repaid. That way you can get you and your wife into a house earlier without having to wait another 12 years to, what I assume is, your AFPS 15 exit point and lump sum?!
Good luck (and clear that car loan! 😁👍)
12k on a car, 25% APR, you got it on a finance from the dealer didn’t you? So you only have 7k left over, why is that APR so high? Can this go into a normal bank loan?
Is it possible to take out a bank loan at low interest rate and pay that off? 25% on 12k = 3k/year interest, you could be saving literally thousands by 2025 if you get lower APRs.
Yes there will be a cancelation charge, but it will be nowhere as high as a normal low(er) interest bank loan saves you.
I see a lot of people saying “my wage will become” but unless you’re in the process of accepting the new salary or have a date set etc: forget about it, don’t plan on spending money before you’ve earned it.
Don’t worry about non-judgemental, that’s what rule 1 is here for.
Also I had about as much debt as I had in savings when I got my house. It was almost like I had used my bank loan as the deposit! I saw a mortgage advisor anyway and it didn’t matter as I had proven I was able to make the regular payments etc.
Firstly, credit to you for being somewhat committed to sorting this out.
Those APR rates scare the shit out of me. Ay those like your future depends on it.
Probably don’t want to hear this bit, and I am no expert on car purchase/leasing schemes., But can the money out vehicle be handed back? Again, I want to reiterate, I have zero experience of buying anything except old bangers. I would love a new car, I “need” a newer car (want an auto as I have knee pain) and the clutch causes me havoc), but I genuinely can’t face the monthly cost. Worked with a guy, and he paid £700pm for some car (beautiful car…. But…£709pm!). He ended up quitting his job as it was the only way to get out of the contract (I don’t recommend this). Cara are a liability, not an asset (mostly). Nice to have a Bentley and a flat in a swanky area, better to have my car and a house of your own. You cannot pass on a rented property….
You made a comment about “if you don’t dip in to the spare balance”. Fella, don’t dip! Plan out the outgoings on a spreadsheet, work towards the goal. Trust me, it sounds too simple to work…but it works. The sub is full of folk that cannot balance their books. After several replies, you can see it dawn on them, they are too liberal with their choices.
Be disciplined, be tight. I know folk with higher debts, that lived super frugal for a year or two, and turned their lives around. That can be you too.
Can you get a mortgage in two years? Yes. Will it be what you need? Can’t say. But the level will be dictated by how well behaved you are over the next year or two
It is always best to speak to a mortgage broker, they are there for exactly things like this.
Even if you assume that you’re current 50k income doesn’t increase you want to borrow roughly 4x your income which is fine. Your plan to pay off the debt seems fine but you don’t seem overly convinced that you will resist the urge to spend more.
There are people in much worse financial situations than you that have been given mortgages.
Just to reiterate the very best advice you’ve had, consolidate all that high interest debt into one low interest debt. You easily qualify for a 6 or 7 percent loan tomorrow. It’s nuts to accept 28% until it expires. You’re giving away 22%! That will free up cash to reduce your car debt faster too, and it helps to prove you’re financially savvy to a mortgage lender.
If you are talking about the joint income being 65k come when you are looking for a mortgage that is fine.
Never had a lender question me in the past about how long anyone in the forces plans to stay in for.
Good luck
Get quickly balance transfer credit card and transfer money from it to your old credit cards. Yes you gonna pay 3-4% fee right now but you will have 0% interest for some time. Yes keep saving because with that sort of money you should buy easy and best times to buy are on the corner
I thought the same, about 5k in the hole to credit cards. Payments up to date and balances all getting smaller. Wife, 2 kids and we need a big house. Got a fair chunk of equity so the mortgage isn’t huge. 2 zoom meetings and the application is sent to the underwriters. They came back in less than 24 hours with a yes
With your income / cost of SFA you should have a decent amount spare. Have you got a full budget of what you’re paying for worked out?
Imo you’re kind of overcomplicating the issue.
1. Cut down your spending and get discipline there.
And one of the things that’s important here is to try to find substitutes you like and keep buying things that are really important. Don’t make yourself miserable over it, just make sure you spend a lot less than you earn.
2. Use the excess to pay down the debts as fast as you can.
3. When that is done build up a deposit.
4. When that is done you’re ready for a house.
Just keep it simple and stay focussed and motivated. One thing I like to think is “oh I want to buy that thing , and I’m not going to, and I’m going to imagine £5 going into my house fund right now getting me the future I want.
A related tangent – but don’t forget that if you have over 12 years military service you will get a resettlement grant which I think is circa 11k tax free…
Unless you have already factored that in!
Edit: and how close are you to your EDP point?
Get rid of the car – the best car to have is the car you own. Get something cheaper.
Check your cards and see what balance transfer options are available. You may be able to bounce the money around between them (if there is any available credit) and get that 25% down to maybe 4% fee with 18 months interest free or maybe 6 % PA over 2 years with no fee. That’s where I would be starting
There’a a strong possibility that the army will offer you a link to a debt consolidation service for a deduction at source repayment, you can prob get your interest rates way down. Really worth considering. Also can prob get some free advice for mentoring through an armed forces association. Look into it. There might also be some stuff about helping you train for exiting the army.
If you can blitz the debt and follow some advice here I can’t recommend you to try and buy whilst still in service enough.
I bought when I was on my way out, knowing I’d be taking a huge wage hit, we just about held it together but our income was less & house a bit pricier.
Also, don’t assume you’ll be on less, I was made redundant from the lower paid job I left for during covid, not long after I was on double my mil wage in a comfortable job – there’s alot of ignorance and negativity in the mil towards civilian careers – I don’t think I know anyone who isn’t loving life after leaving with more rewarding jobs & paypackets.
I feel I have to mention that if you’re talking about a 230k house today, then that’s going to be a 260k house in 2025.
I don’t understand your timeline – if your deposit is coming from you leaving the forces we really can’t comment on your eligibility for getting a mortgage until we know what your next job/wage will be.
It’s not realistic to think you’ll be able to apply for a mortgage and then leave the forces and use that money as a deposit – my mortgage provider required proof of funds and where they came from – there’s a chance they’ll know with the lump sum you’ve left and require proof of earnings for your new job.
Consulting a mortgage broker is the optimal approach, as their expertise is tailored precisely for situations of this nature.
Hi /u/-WilliamMButtlicker_, based on your post the following pages from our wiki may be relevant:
– https://ukpersonal.finance/credit-cards/
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Sorry to hear the military have you trapped. That’s how they retain staff!
The good news is that the military setup will allow you to live very frugally if you want to. You probably also possess the personal discipline to follow through.
On the extreme end of the scale, could you volunteer for a tour somewhere and pay the debt in a few months?
Personally I was fortunate(?) enough to do 3 tours in 2 years to save a deposit
Do you know what your mortgage payments will be borrowing £200k?
Balance transfer credit card, you could get 0% interest for a period with no fee, then at least you’re not paying interest. Also if you have taken car finance, if you’ve paid over half and the car has nothing but wear and tear, you could do a voluntary termination where you return the car and the contract is ended with no detriment to yourself. You could then look at a low interest bank loan to buy another to pay less.
Ex forces here but was forces when I bought.
My Mrs not working and 1x sprog meant I couldn’t get a mortgage for 240k. We had a 40k deposit and this was in 2018. Debts were a car at £250 a month (was one of those loan purchase agreements)
Mrs had to go back to work full time and we had to get grandparents to look after the sprog and only then were we in a position the bank would lend us. (At this point I had been saving 750 a month for nearly 3 years).
I didn’t use forces help to buy although that could have boosted our deposit alittle.
I can relate mate. 12 years in, decent salary, however I was married to someone that decided they didn’t want to work so I’m currently clearing all the debt with a trashed credit rating. Plus side is I only have £5k debt, downside is I have a 07 plate car with 200k miles on and no option for finance despite the fact I have 2.2k hitting my bank every month 😂🤷🏻♂️. The things we do when we’re young soldiers really do linger!
You sound like you’re not in that bad of a position to be fair once you clear the debts. I assume the £17k deposit is FHTB? Just make sure you find out if you will be able to convert the debt if you leave because the last thing you want is them taking 80% of your pay for your last 12 months. It’s a retention tool after all.
If you have 17k in savings then you need to clear your whole credit card debt right now.
Would you not be better off taking out a loan to pay off the CC’s and then have your payments consolidated into a lower interest repayment.
Get the clear score app and it’ll tell you what your score is and what you are eligible for. I think it would be better for you if you can clear all the debt by the time you come to buying the house as it will show better credit score, interest rates are high especially if you’re gonna have 7k still in debt.
If there’s one thing the military is bad at is encouraging personnel to save. If you’re always in debt, you can’t leave…or it’s very difficult. Beans on toast for 12 months and be absolutely ruthless with your outgoings.
I would advise doing an AIP and seeing what you’re able to borrow, it’s not ideal to have debt when getting a mortgage but it’s not the end of the world if everything is affordable
Get an emergency emergency fund together worth £700. Pay off all your debt (except student loans if you’ll never pay them off, still might be worth it if you’re a Lannister who pays his debts), then build an emergency fund to cover 6 months of your expenses. Then start saving a 10-20% deposit then when you’ve done that start putting 15% of your gross income into your pension each month.
Two words for you my friend: balance transfer! Move the existing credit card debt to a 0% balance transfer card/s. A percentage fee usually gets added to the balance you transfer, but will be less than you pay out in interest currently.
In my experience mortgage lenders won’t necessarily turn you down because of existing debt ~per se~.
It’s about the proportion of debt to your income, your ability to meet any fixed financial obligations each month and the remaining cash you have left over (partly to stress test if your finances could cope interest rate rises).
As most people have said, find a mortgage broker to chat to about this well in advance of applying for a mortgage and planning your house purchase. They’ll tell you the amount of mortgage lenders could offer based on current circumstances and you’ll know what you’re working with/where you need to get to.
Get rid of your car, buy what you can afford in cash. No point trying to look rich driving nice car while you are broke at the same time.