When you think about buying a new home, you will likely need to take out a mortgage to be able to pay for it. This form of lending can allow you to pay back the price of the property over time.
No matter what type of mortgage you opt for, the lenders are going to look into your background and decide whether or not you will be able to eventually pay back the money you owe.
Now, if you have taken out a car finance loan, or have other debts in general, you may be wondering whether you will still be able to take out a UK mortgage. After all, a lot of debt can be an intimidating thing. But that’s what we are going to find out below!
Why will lenders look into my background for a mortgage?
If you are looking around for a home, it’s very likely that you will not be able to afford it immediately. That’s why you may look into taking out a mortgage. A mortgage is defined as an agreement made between you and a lender. The lender will have the right to repossess the property if you do not pay back the mortgage with added interest.
When you take out a loan with a lender, you will find that they will look into your background to see if you have any unpaid debts, or potentially any previous financial problems with other lenders.
Your financial situation is extremely important when it comes to taking out loans. The lender will look into the level of debts you have and what your monthly outgoings tend to be. This will ultimately affect how much money they will be willing to lend you, so that they can be confident you will be able to afford your mortgage.
Will car finance affect my mortgage?
If you have taken out a car finance deal, it will affect any mortgage that you take out in the UK. All lenders and banks are legally obligated to look at your finances before they offer any money for your mortgage. However, they will check more than just your car finance. They will also look at your:
- Job status
- Credit rating
- Loan repayment history
- Previous loans and debt
As car finance counts as a form of debt, it is a legal requirement for lenders and banks to check how much you have paid off, as well as how much you have taken out to afford any car payments. Ultimately, if they find that you have a large debt caused by your car finance, it’s very likely that they will only offer you a small loan to help you afford your mortgage. However, do not be completely put off of car finance if you have a bad credit score, as there are still solutions to this.
Can I afford a mortgage and car finance loan together?
Yes, you can apply for both mortgages and car finance, but it may not be the best idea. You may not be offered a mortgage if it can be proven that you can’t pay back the loan you have currently taken out. This doesn’t just have to be due to an unpaid debt from car finance. In fact, it could be any other type of monthly payment that could get you a refusal.
You need to examine your financial history and current payment schemes to see if you are eligible for a loan. If your monthly outgoings seem to be higher, the lender may see you as far too risky to offer a loan to. Therefore, they may refuse you entirely and you will not be able to receive a mortgage.
What should I do before I take out a mortgage?
The most important thing you can do is check your credit rating before you think of taking out a mortgage. If you have a bad credit rating, or a history of bankruptcy or an inability to pay back debts, you may find that your credit score is very low.
Make sure that you do not take out a loan of any kind – whether a mortgage or car finance – unless you know that you can pay it back. Honestly, if you do end up being able to take out a mortgage with your poor finance history, you may find that you will need to pay back a higher level of interest.
If you want to improve your credit rating, make sure to repay all of your loans on time. You can do this by making small payments throughout the year to improve your line of credit. This includes any car finances or loans that you take out. The more credit you build up, the more likely it is that you will receive a mortgage from your lender or bank.
Would you like to see what your chances are of obtaining car finance? We have a handy online car finance calculator to help you make sense of the numbers – or you could simply apply online now for a free and no-obligation quote for car finance.