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Does car finance affect residential mortgages?
If you are taking a residential mortgage many people ask ‘does car finance affect mortgage’ and the answer to this is, yes, having car finance on your credit file may affect your mortgage application.
The reason is that lenders carry out a full affordability assessment when you apply for a residential mortgage. This includes looking at your income, how it is made up, and your outgoings too.
Payments you were contracted into, such as car finance, loans and credit cards, will be factored into the affordability assessment when working out your maximum loan amount.
As a result, the monthly payment you pay for your car finance may reduce the amount a lender is willing to lend to you.
This is not always the case, though, as each lender has their own algorithm built within their calculators, so a payment may not be significant enough to affect your borrowing capacity.
It will be down to your mortgage adviser to look at your income and outgoings to establish whether the payment will make a difference or not.
They have access to the tools that can tell them how this would affect your mortgage application individually.
As a result, if you have car finance and are looking for a mortgage, you should talk to an experienced adviser that can tell you your options.
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Does car finance affect buy to let mortgage?
For most buy to let mortgage lenders, it is unlikely that your car Finance payment would affect the mortgage application.
Buy to let lenders are generally most concerned about the amount of rent the property will generate to cover the loan amount at the individual stress test rate. This rate differs from lender to lender.
Buy to let mortgage lenders do need to ensure that you are in a solid financial position, so they will still ask for details of your income and outgoings.
They will also check your credit file during the process.
This means that if they felt an applicant’s total indebtedness put them in a position where they may struggle to meet their contracted outgoings, they may decline the mortgage application.
There are also some buy to let lenders underwrite applications based on personal affordability to ensure people are not borrowing too much and in a difficult position if the property is vacant.
However, for most buy to let lenders, as long as the applicant meets the lender’s criteria (and minimum income criteria if they have one), they will not usually be concerned by a car finance payment, as long as the applicant is in a solid financial position.
A mortgage adviser can tell you which lenders you would qualify for, considering your whole situation, income, and outgoings.
Does car finance lower your credit score?
A car finance payment should not lower your credit score as long as you are not heavily indebted and payments have been made successfully.
There are occasions where having car finance on your credit file, as long as the payment is affordable, can be a positive thing, as it demonstrates to lenders that you have satisfactorily conducted credit in the past.
This does not mean that somebody should ever take car finance in the hope it will help their credit file.
You should think carefully before taking any finance to ensure that your other commitments remain affordable with this finance in place.
Does a car lease affect your mortgage?
Car lease payments can affect your mortgage in the same way that a standard car finance payment can.
The reason is that lenders look at your contracted outgoings and factor these in when working out your maximum loan capacity.
Like a car finance payment, a car lease payment may not always mean that you can borrow less if this is in place.
With lenders’ calculators being built differently, including different tolerances for outgoings against a person’s income, where it may mean that one lender offers you less, another lender may not change their calculation.
It isn’t easy to know at what point a car finance payment for a car lease payment will make a difference to the amount that a lender would lend to you.
A mortgage adviser has the tools to calculate your maximum loan capacity across the different lenders.
It would help if you told your mortgage adviser your entire situation, including all income and outgoings, so they can see which lenders will be able to lend you the amount that you need to borrow.
Will paying off car finance get you a more extensive mortgage?
It may be possible that you can get a larger mortgage if you pay off your car finance.
Depending on the lender’s calculator, your income, and how much the car payment is, paying it off may be the difference between the amount a lender is offering you and the amount you need.
A mortgage adviser should be able to look at the difference and how much you can borrow in both scenarios, including with the finance remaining in place and with the finance paid off.
They can then advise whether it would make the difference needed to achieve the loan amount you need.
It may be the case that it increases your affordability with some lenders but not necessarily with all of them.
It may also mean that it does not have an effect and your mortgage capacity remains the same with or without the car finance.
Rather than guess whether it would make a difference or not, it would be recommended to talk to an experienced mortgage adviser that could run the calculations and advise you on what your options are.
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How can a mortgage broker help me when I have car finance?
A mortgage broker is a valuable person to have in your corner when you are looking at taking out a mortgage.
Not only do they have access to all the lenders, but they also have an abundance of mortgage knowledge built up by working with lenders daily.
This means that a mortgage adviser will know which lenders are suitable for you in your situation.
If you plan to repay your car finance, a mortgage adviser should know which lenders increase your mortgage capacity due to paying off the debt.
Mortgage advisers have tools available to them, such as lenders’ calculators.
Lender’s mortgage calculators consider payments such as car finance before and after clearing this debt.
Your mortgage broker can advise you accordingly, depending on your plan.
Will missed payments on my car loan affect a mortgage?
If you have not been successfully paying your car finance, the car finance will affect your credit file.
When you miss payments to a creditor, the creditor reports this to the credit reference agencies who hold this data on you for future creditors to view.
Missed payments, arrears and defaults are considered adverse credit, which may mean that the mortgage lender you wish to use will not accept your application.
This could, however, depend on when the payment was missed, how many charges were not paid successfully and the amount of the monthly payments.
Some lenders specialise in mortgages for people with adverse credit.
These lenders also need to know the full details of the adverse credit and why it occurred.
This is important because lenders need to ensure that your financial position is now strong and you are not likely to miss more payments in the future.
Adverse credit is a complex area, and many different forms of bad credit exist.
For instance, bad credit can consist of defaults, arrears, missed payments, IVAs, CCJs, bankruptcies, repossessions and more. If you would like more details about your credit profile, you can go to Check My File to sign up for a free trial. A mortgage broker working with adverse credit lenders would need to know the full details of your adverse credit to find a lender for you.
Your car finance payments may affect your mortgage.
Like any loan payment, a lender needs to factor this into your affordability calculation when working out your maximum loan capacity.
Due to your income or the amount of your payment, the car finance payment does not affect the amount you can borrow.
Otherwise, it may be the case that repaying this car finance could mean boosting the amount you can borrow to achieve the loan amount you need.
An experienced mortgage adviser would be able to look at your incoming and outgoings to assess which lender is most suitable for you.
They can also research whether repaying your car finance would increase your mortgage capacity and make a recommendation accordingly.
If you are considering a mortgage, you should always take professional advice.
Please complete the contact form if you would like. I NEED ADVICE to match you with a qualified and experienced mortgage adviser who can tell you your options, offering you a free consultation.