How car loans hurt your mortgage offer: Banks cut the amount they’ll lend to customers who borrowed to buy an engine to £ 35,000
- More than 6,300 people a day borrow to buy a car, figures show
- Motorists may not realize that auto financing will jeopardize mortgage odds
- Experts say even a “modest” car loan can have a “huge” effect on the mortgage
Homeowners who have taken out loans to buy cars are penalized by lenders when they apply for a mortgage.
Research by Money Mail has found that in some cases banks are reducing the amount they will lend by up to £ 35,000 for customers who already have a car loan.
More than 6,300 people a day borrow to buy a car, raising fears of a new credit bubble as drivers took on £ 31.9 billion in debt last year, up 10% from the previous year. ‘last year.
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Homeowners who took out loans to buy cars are penalized by lenders when they apply for a mortgage
Now, experts are warning motorists can take out auto financing without realizing it will hurt their chances of getting a mortgage.
Aaron Strutt, of mortgage broker Trinity Financial, said: “Most people will have no idea that even a modest car loan can have a huge effect on the amount of mortgage you can get.
“If you have two or three cars in financing, it can cost tens of thousands of pounds to the offer the lender will make.
“And if you have auto loans and other debts hanging over your head, you might even be rejected by the banks.”
Alistair Hargreaves, of mortgage broker John Charcol, said: “Having a lot of debt – whether it’s credit cards or car loans – also affects your credit rating and lenders take that into account.
Money Mail research has found that in some cases banks are reducing the amount they will lend to as much as £ 35,000 for customers who already have a car loan.
Fears that auto loans will be granted too freely have put the watchdogs of the Bank of England and the city on alert.
The boom is fueled by Personal Contract Purchase Plans (PCP), which now account for more than eight in ten sales where the driver buys on credit.
The buyer pays a cheaper monthly payment than traditional auto loans and can choose between paying a lump sum to buy the vehicle after three to five years or returning it to the dealership and getting a new offer on a new car.
But entering into these types of arrangements impairs their ability to borrow against a home. A couple with a combined income of £ 60,000 can borrow up to £ 300,000 on a mortgage from the big banks.
But if they each paid £ 250 for a car, their mortgage would drop to as low as £ 35,000, according to broker John Charcol’s calculations.
Indeed, banks are now required to take into account the monthly expenses of borrowers, including debt repayments, when determining the amount to lend.