Will Stoozing Affect my Mortgage Application?
| Author: Clariman | Created: 18/08/2007 |
As most stoozers know, applying for many credit cards can affect one's credit rating. That is why stoozing.com only advocates stoozing if you are not in debt and if you are prepared to take some risks with your credit rating. Having said that, most stoozers will also have a mortgage or will be considering taking one on at some point in the future, so it is important to understand the impact of your stoozing activities when applying for a new mortgage.
In our Stoozing FAQ we take a fairly hard line on stoozing and mortgage applications, saying the following
Quote:
You should consider suspending your Stoozing at least 6 months before making a mortgage application i.e. to pay off all your Stooz cards and close them. Its also worth noting a recent mortgage application will damage your credit rating for up to 6 months after, so stoozing is not possible during this time.
If you follow the above guidelines then you should not be caught out. However, those guidelines are rather black and white and do not take into account your unique circumstances. In this article we show you how mortgage lenders assess your credit card debt, so that you can see the potential impact of your stoozing on your mortgage application. It may not be as bleak as our FAQ suggests.
It is all about affordability and risk
The most important thing to a lender is to know that you will be able to pay the mortgage back and that you will be a profitable customer. They make a judgment on how much of a risk you will be by taking into account your earnings, your credit history, how much you want to borrow and what your other financial commitments are. That applies to all mortgage lenders, although the criteria they use will differ based on their attitude to risk, their lending policies and their target market.
How big a mortgage can I get and how does stoozing affect it?
Assuming that you have a good credit history, the lender will offer you a mortgage based on a multiple of your salary. A fairly typical salary multiple offered by lenders today would be 4x, so someone earning £40,000 could get a mortgage of £160,000. However, if you have credit card debt (real or stoozed), the lender will reduce the amount that they will lend. Mortgage brokers have told us that we should use the following assumptions as a guide.
A lender will assume that you are making up to 5% minimum payments on your total available credit. To work out the annual cost of your card debt, they multiply this by 12 and then deduct that annual amount from your salary, before doing the salary multiple calculations.
- Salary £40,000
- Credit limits £30,000
- Assumed monthy payments £1,500 (5% of £30,000)
- Derived annual payment £18,000
- Net salary for mortgage multiple calculation £22,000
- Likely mortgage offer based on 4x salary multiple - £88,000
If the above figures were for a stoozer wanting to borrow under £88,000 on a mortgage, then they could probably continue their stoozing activities despite making a mortgage application. If, however, they wanted to borrow more than £88,000, then they would need to reduce or stop their stoozing before applying for the mortgage, leaving sufficient time for the closed cards to be reported to the Credit Reference Agencies (minimum of 2 to 3 months).
Your lender may be different - take advice
Remember that each lender uses their own criteria, but two mortgage brokers gave the above guidance as 'worst-case' and you should use that in your early mortgage planning. However, that should not take the place of speaking to your own financial advisor or your mortgage lender, to find out how they handle credit card debt when making lending decisions. Your lender may be different in a number of ways.
Stoozers have reported examples of all of the following:
- Lenders assuming that your minimum payments would be 3% rather than 5% e.g. YBS reduced a poster's salary by 36% of their outstanding debt before doing salary multiples. This equated to 3% over 12 months.
- Lenders asking you what you minimum payments actually are
- Lenders basing the calculations on actual credit card debt, rather than available credit
- Some lenders have been prepared to ignore stoozed credit card debt, when the stoozer has explained
stoozing and either
(a) given evidence of their stooz pot savings or
(b) given evidence of the savings and a commitment to pay the cards off.
One stoozer had to sign a 'memorandum of understanding' which committed them to paying the stooz debt off in a defined timescale! Only a few lenders have been known to do this and only when you have spoken to someone in authority.
Summary
Some stoozers may be able to continue their stoozing activities right through the mortgage application process, but many will have to cease or reduce them well in advance. Use our figures as a guideline, but seek advice from your lender or financial adviser before you make your final decision. If in doubt, stop stoozing well in advance.
More information
Stoozing against an offset mortgage makes stoozing more profitable. Read our Guide to Offset Stoozing.
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