It’s all well and good ordering your brand spanking new car and having it sat on your Mum’s drive, but how will it affect you when you come to get your foot on the property ladder?
We’ve teamed up with a leading fee-free independent mortgage adviser, Tom Pitman CeMAP, who works with Chesterton Grant Mortgages Ltd to guide you through the advantages of Leasing vs PCP when you come to get a mortgage.
When it comes to getting any finance, lenders will always look at your income, and how much you spend, to see if you can afford what you’re applying for. When it comes to getting a mortgage, lenders like to see the overall picture. They look closely at how much income you bring in compared to your debt, this is known as ‘income-to-debt ratio’. If your income-to-debt ratio is over 100% - for example, if your income is £20,000 per year and you have debt of more than £20,000 (100%+ income-to-debt ratio) - you will find it difficult to find a lender who will accept you.
PCP agreements often have huge balloon payments at the end of the deal, which makes the monthly payments seem very appealing. However, what many don’t realise is that the balloon payment, along with the finance agreement, are shown on your credit file. So, basically, the full value of the car will be shown and therefore it will affect your income-to-debt ratio.
Leasing agreements, on the other hand, display just your finance agreement rather than the full value of the car. So, as an example, someone ordering a £40,000 car may only have around £12,000 on their credit file. Lenders will still factor your monthly commitment into affordability checks, but you won’t have the full value of the car on your report, which means you would have a much lower income-to-debt ratio and therefore make you more likely to be accepted for your mortgage.
The Legal Bit
This article does not constitute advice, it is for information purposes only. You should contact a mortgage broker for personalised advice for your specific circumstances. You can ask Tom for a personalised illustration using the contact details above.
Leasing Agreements may vary on manufacturer and finance provider, please check your agreement if you are unsure, we cannot guarantee that all leasing deals operate in the same way, please refer to lender for more details.
No broker related fees are charged with any mortgage recommended and arranged by Tom or Chesterton Grant Mortgages Ltd. They will be paid commission from the lender.
Chesterton Grant Ltd is registered in England and Wales No 4198365 | Chesterton Grant Mortgages Ltd is registered in England and Wales No 4232613. Registered Address: Evolution House, Lakeside Business Village, St David’s Park, Ewloe, Flintshire CH5 3XP. Authorised and regulated by the Financial Conduct Authority. Chesterton Grant Ltd is entered on the Financial Services Register https://register.fca.org.uk/ under reference 408148. Chesterton Grant Mortgages Ltd is entered on the Financial Services Register https://register.fca.org.uk/ under reference 300796.
Your home may be repossessed if you do not keep up repayments on your mortgage.