Why buying a new car on finance might knock your mortgage chances #UKFinance

Homebuyers are being warned that buying a new car this month could knock £36,000 off any mortgage offer they can get from a high street bank or building society.

Coventry Building Society says a borrower on a typical salary of £35,500 without credit commitments can get a home loan of £156,000.

But if they buy the most popular car sold this year – a £26,600 Ford Puma – then mortgage lenders will only offer a home loan of up to £129,000. Buy another model, such as a £29,500 Audi A3, and the money an individual can borrow falls to £120,000.

Watch out: Homebuyers are being warned that buying a new car this month could knock £36,000 off any mortgage offer

The figures are based on how much money mortgage providers are willing to risk lending to potential customers if they also have other credit commitments, such as taking out a loan to purchase one of these cars.

And with the average house price in the UK now standing at £288,000, according to the Office for National Statistics, it can be the difference between affording a home or not.

Jonathan Stinton, head of intermediary relationships at Coventry, says: ‘Buying a brand new car is exciting, but before signing on the dotted line, it is worth considering what the extra outgoing can mean for your mortgage – whether buying a first home or remortgaging.

‘It could mean compromising on an extra bedroom or having to save for longer to make up the difference.’

He adds: ‘It is not to say people should not buy a new car, but it is worth remembering that it can limit your options.’

The calculations on how much is offered as a mortgage are based on buying a Ford Puma with loan repayments of £330 a month for four years after paying a £3,430 deposit. It is a special offer available from Ford dealerships until September 30.

But the building society calculates that if you are living as a couple both earning the average salary and wanting a mortgage, the amount a lender offers falls from £300,000 without buying the Ford Puma to £291,000 if you do. If the couple need a car each, the offer tumbles to £275,000.

Those in the market for a more luxurious vehicle, such as the popular Audi A3, will find themselves even more restricted on how much money they are able to borrow to buy a house or if they want to remortgage.

Variations: How much you can borrow may be affected by what car you purchase

Based on paying £409 a month for 48 months with a £3,500 special offer deposit from Audi for a £29,500 entry-level A3, Coventry calculates that an individual previously able to borrow up to £156,000 for a mortgage will find this falls to £120,000 – a difference of £36,000.

The car loan comes with an ‘optional final payment’ of £13,650 if you want to keep the vehicle after paying your final instalment. As a couple earning the same without taking out a car loan, you can borrow up to £300,000. Buy the Audi A3 and the amount being offered falls to £288,000.

The building society’s calculations were made using maximum borrowing amounts offered by High Street mortgage lenders including Lloyds, Nationwide, NatWest, Santander, Barclays, HSBC and Coventry.

Brokers such as Hargreaves Lansdown believe it is particularly important to keep a tight reign on your finances – including on how you budget for a new car – with the cost of buying a home remaining stubbornly high despite the recent fall in the Bank of England base rate to 5 per cent from 5.25 per cent at the beginning of August.

House prices have risen by an average of 1.4 per cent for the first seven months of the year, according to the latest figures from the property website Zoopla.

Yet the Household Cost Indices for the UK has seen the average cost of living rise by 2.5 per cent – while those with a mortgage have seen inflation of 3.7 per cent, according to the ONS.

This means that, in real terms, homeowners may have less money to spend.

Sarah Coles, head of personal finance at Hargreaves Lansdown, says: ‘Stubborn mortgage rates are clobbering homeowners – and this is feeding through into people’s pockets as they look to buy or remortgage.’

When it comes to budgeting, the cost of transport, including car ownership, typically accounts for almost a sixth of household expenditure, according to the RAC Foundation.

And for two thirds of us the cost of running a car is the biggest expense after a mortgage or rent payments, says consumer website NerdWallet.

It found the annual cost of owning a car already purchased is £3,400 a year. However, if buying a new car using a loan, then the price of this can rise to more than £5,700 a year – including repayments, repairs, insurance and fuel.

The new ’74’ registration plate issued on September 1 marks the start of a new car buying season – when traditionally motorists are keen to buy a new vehicle.

Last September saw sales rise 21 per cent on the previous month, with 273,000 new cars being registered, according to figures from the Society of Motor Manufacturers and Traders.

Latest figures show that new car sales in July saw a year-on-year increase of 2.5 per cent. Year-to-date sales rose by 5.5 per cent, with 1.154 million new cars registered in the first seven months.

New number plates are issued twice a year – at the start of March and the beginning of September. The new 74-plate will apply to all new vehicles registered until February 28 next year.

The first two letters of a number plate provide details of where a vehicle was registered. For example, MA for Manchester and Merseyside.

The following two digits are the age identifier – which is where the 74-plate replaces the previous 24-plate that was issued at the start of March.

This month the number will reflect the year of issue – 2024 – plus 50, which is the number of digits added in September.

The last three letters are randomly chosen and allocated to a dealership when a car has been registered.