Paid off credit, how do I position myself for a mortgage application?

Question

So, since this question I have cleared my credit/store cards and now have a couple I use month to month with no balance carried. My question is about my strategy regarding applying for a mortgage.

Realistically it might be 6-12 months for us to save up a 20% deposit and 'moving fund' (depending on the property we buy) - will the positive effect of paying off my cards be waning by the 12 month mark? Should I keep the cards which now have a zero balance (4) until then or close them now? I have around £15,000 of available credit and a further £2,000 that revolves each month, is that too much available credit? I'm in the UK and I don't believe the ratio is as crucial as it is in the US (I may be mistaken though, please correct me if that's wrong) in which case, closing a couple of accounts would be best - but I don't want to lose the beneficial effect of having 5+ year old accounts with perfect history (no missed payments, no over-limits, lots of use (if that's good?!))

I've tried some searching and although I've found some useful answers, a lot may only apply to the US and I couldn't find anyone who's faced a totally similar situation.

Answer 1

In my experience from recent mortgage applications the most important thing was income vs expenditure. So not having regular payments for loans or credit cards is a big plus.

Having lots of a available credit and not using too much of it is also a positive on credit ratings. If you are concerned about not gaining any credit rating "score" because you aren't utilising the cards then just pay one or two of your monthly expenditures on a card (preferably a nice cashback/rewards card) and pay it off in full each month.

Answer 2

(this is a UK focused answer)

On the credit cards side the most important thing is that you are making payments and making them on time. Clearing the balance in full every month is fine. If you have not already done so I would suggest setting up direct debits to pay your credit cards so you don't forget and get a missed payment on your records.

Many banks and building societies (afaict our building society's are roughly the equivalent of what Americans call credit unions) will either explicitly or implicitly consider your savings record with them when assessing people for mortgages. So I would suggest spreading your savings around the banks and building societies who you are likely to approach for mortgages. Nationwide have a specific "save to buy" account which I would strongly consider getting.

Answer 3

IMO, Keep your revolving accounts open and strive for that 20%.

The more of a down payment you can come up with, the better luck you will have shopping around for rates and terms. Also, with a 10+% down payment, don't pay any points if you can avoid it.

Open a bank account with a local credit Union and ask them for a mortgage. In my experience, credit unions are much easier to work with and mortgages have better terms. Avoid a mortgage broker, since in the end, you'll be paying him several percent in junk fees. (I terrorized a mortgage broker one time and made him itemize and explain every $500 junk fee (document fee, application fee, etc). After pointing out how several of his fees were duplicates, he waived about $1000 in fees he couldn't justify.

Good luck!