In This Article
Does PCP affect mortgage on a residential property?
If you are applying for a residential mortgage, lenders will need to carry out a full affordability assessment.
This means that they are looking into your entire income and breaking down where this all comes from.
For example employed positions, self-employed positions, maintenance, pensions and state benefits.
In addition to looking at your full income, lenders also need to know your debts and outgoings to ensure that you can afford the mortgage.
This means looking at child maintenance payments, loans, credit cards, background mortgages, car leases and PCP payments.
Your PCP payment will be factored into your affordability calculation and depending on the amount of the payment or your level of income, this may affect the amount that you can borrow.
A mortgage adviser would work this out for you by taking full details of your income and expenditure.
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Does PCP affect mortgage on a buy to let property?
A PCP payment is less likely to affect a buy to let mortgage.
This is because the buy to let lenders’ main concern is the rental amount that is achieved on the property each month being enough to qualify for the loan amount. This is referred to as the lender’s stress test.
The lender may also have criteria for overall indebtedness. In this case, if it was just one PCP payment on the credit file, it is unlikely to cause a problem.
If however, there were a vast amount of debts on an applicant’s credit file going to a large balance that the lender felt May put the applicant in a difficult position, they may not be comfortable with lending.
Some lenders also arrange buy to let mortgages using a residential mortgage affordability calculation.
For these lenders, the PPC payment will be more significant as it will be factored into the applicant’s affordability.
An experienced mortgage adviser would be able to tell you which lenders are suitable based on the debts that are on your credit file.
Does PCP affect the mortgage on a bridging loan?
It is unlikely that a PCP payment will affect a bridging loan. Bridging loans are generally arranged on the basis that interest is retained throughout the term of the bridging loan and repaid at the end.
As a result, your monthly payments are less likely to be a concern to the bridging loan lender.
Where it may have an effect is if the bridging loan was to be arranged on an interest only basis with monthly repayments to be made.
In this case, the lender would need to take into consideration your monthly commitments and debt obligations to ensure you are in a position to make your monthly bridging loan payments.
A skilled bridging loan adviser would be able to confirm your PCP payment would affect a bridging loan that you intend to take.
Bridging loans are expensive so always take professional advice.
Does PCP affect mortgage on a commercial property?
The exception may be where they look at the director’s financial position wishing to understand the level of debts that are in place.
As many commercial lenders require the director to sign a directors guarantee to confirm that the mortgage will be paid personally if the company was unable to make the payments, they would need to know income and outgoings.
If a director had a high level of debt which meant making payments for a mortgage may be difficult, this could be a concern for a commercial mortgage lender.
It would be down to your commercial mortgage broker to understand your situation and confirm whether your incoming outgoings will be suitable for the lenders in mind.
Your commercial mortgage broker will likely be a member of the National Association of Commercial Finance Brokers (NACFB).
I am repaying my PCP, does this still affect my mortgage?
If you plan to repay your PCP contract on completion so that it no longer exists when the mortgage goes through, some lenders can disregard this commitment.
Not all lenders offer this as some only ignore a payment for a debt if it has been fully repaid at the time of application and is no longer on the credit file.
In this instance, the lender would likely request evidence that the data has been repaid by way of a statement from the creditor showing a zero balance and seeing the sight of the transaction on a bank statement showing the payment to the creditor.
With the lenders that ignore the date entirely if they are told it is being repaid, they will likely just sense check that you have access to funds to pay this debt off.
Experienced mortgage advisers will know which lenders can disregard existing debts when they’re being repaid. Read more: Does Car Finance Affect Mortgage?
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I have missed payments on my PCP, will this affect my mortgage?
If you have missed payments on your PCP contract, this can affect your mortgage application.
Payments and arrears are considered adverse credit and not all lenders will lend to people that have bad credit on their credit files.
Some High Street lenders may still consider an application with missed payments but there will be other things to take into consideration.
For example, the Equity within your property, when the missed payments occurred, how much they are for, whether they have been settled and your household income.
If a High Street lender is not willing to consider your application, it may be possible to get a mortgage with a specialist lender. This is because there are lenders that specialise in mortgages for people with adverse credit.
Your mortgage adviser would need to understand the full details of your credit file and overall situation to assess whether you would qualify for a mortgage with the High Street or a specialist lender.
They would need a copy of your credit file to understand the address history.
It would be recommended to get a copy of your report from Check My File as this shows data from three major credit reference agencies.
A PCP payment will not always affect a mortgage but it will depend on more factors.
For example, if it is a residential mortgage, your overall income will be important when calculating whether a PCP payment will reduce short affordability.
If you were looking at a buy to let mortgage, your overall indebtedness is a consideration for many lenders to ensure that your position is financially strong.
When considering taking your mortgage, you should always look for a professional Adviser that can fully understand your situation and make a recommendation accordingly.
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