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Getting a Mortgage with Credit Card Debt

If you want to know if you can get a mortgage with credit card debt – read on

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By Pete Mugleston  | Mortgage Advisor Pete has been a mortgage advisor for over 10 years, and is regularly cited in both trade and national press.

Updated: 17th February 2020 *

Can you get a mortgage with credit card debt?

This article explains how credit card debt can affect your chances of mortgage approval. It also tells you about other circumstances lenders will take into consideration when assessing your mortgage application.

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Can you get a mortgage with outstanding debt?

It can be possible to get a mortgage with outstanding debt, credit card debt and even adverse credit, but you may be restricted on how much you can borrow. When you apply for a mortgage, lenders want to know you’ll be able to meet the mortgage repayments if they decided to lend to you.

Most of us have taken out some form of credit in the past, whether that be for a mobile phone, car finance, or a credit card. Many people believe that having any kind of debt against your name will ruin your chances of being accepted for a mortgage - but that isn’t necessarily the case.

As long as you are able to prove that you can afford to repay your debt and maintain payments on your mortgage, there's no reason you shouldn't be able to find a suitable mortgage. 

How much debt is acceptable for a mortgage?

When you apply for a mortgage, lenders assess your application for affordability to ensure you can afford the mortgage payments. Lenders will examine the monthly payments you have to make to repay your debt and how that might impact your ability to repay a mortgage on top.

If your income is sufficient to cover both your debt and the mortgage you are applying for you shouldn't find it too hard to find a lender willing to give you a mortgage.

If your income to debt ratio is cause for concern, you may find your options are more limited, but it doesn't mean you won't be able to get a mortgage at all.

To get the mortgage you want, talk to one of the whole-of-market experts advisors we work with.

Whole-of-market brokers have access to all the mortgage lenders across the UK and can access deals you won’t find on the high street. Many of the brokers we work with have successfully arranged mortgages for people with all kinds of adverse credit histories, as well as credit card debt.

Call 0808 189 2301 for a free, no-obligation chat and see how your debt might affect your chances of securing a mortgage.

How does credit card debt affect mortgage applications?

If you have credit card debt, mortgage lenders will look closely at how you manage that debt. If you meet regular payments due and are attempting to reduce the outstanding credit you owe, this will count in your favour. 

Even when you have built up debt on credit cards, there may be lenders willing to approve your mortgage application. But, depending on the level of outstanding debt, your options may be more limited. 

To get the best deal on a mortgage if you have outstanding credit card debt, your best bet is to use a whole-of-market broker, like the ones we work with. 

How does credit card debt impact affordability?

Mortgage lenders will look at many different factors when assessing your eligibility for a mortgage. They will look at how many and what types of credit you owe.

Some forms of debt are deemed lower risk than others. Affordable monthly credit card payments are not usually a problem.

The key determining factor will usually always revolve around your affordability, as commitments to ongoing payments will reduce the disposable income available to make mortgage repayments.

Mortgage lenders assess affordability by calculating your debt-to-income ratio (a percentage reflecting how much of your net monthly income is going towards debt repayment), to determine if you can afford the mortgage payments on top of your existing outgoings.

How are credit card repayments factored in?

Lenders will add credit card repayments into affordability calculations to assess how comfortably you would meet the mortgage repayments. 

For example, say you owe £5,000 on your credit card, at a payment rate of 3% of your debt. The lender will assume that you have to pay £150 per month for your credit card debt, and factor this into how much you can afford to pay on your mortgage.

Most mortgage brokers would recommend against applying for a credit card ahead of a mortgage application as it may cause the underwriter to think your borrowing might increase before completion.

Talk to one of the expert advisors we work with for a free, no-obligation chat to find out how much you might be able to borrow with existing credit card debt.

How do previous credit card applications impact your credit score?

When you apply for a credit card, the provider will carry out a check of your credit report before approving or declining your application. A “hard inquiry” will show up on your report after this check is carried out. This may cause a slight drop in your credit score initially, but a single inquiry is unlikely to have a significant effect on your overall credit rating.

The number of points you receive is dependent on the rest of your credit history, as well as your recent credit activity. 

If you have good, stable history, the impact of applying will be minimal. Inquiries only tend to pose a real issue when your credit score is already marginal, and the instances that led to this score are more significant than the inquiry itself.

Can past credit applications be beneficial to a mortgage application?

While applying for credit is not necessarily a bad thing. In fact, it can be beneficial to your credit score provided you’ve kept up with the repayments. 

Although one or two late payments shouldn’t pose too much concern, it’s always advisable to maintain your regular payments and carefully consider what additional credit you apply for, and when.

Most mortgage providers may view multiple credit applications, made within a short space of time, as a sign of financial difficulty, which will be reflected in your credit score. So if you’re looking to make a large purchase on credit (such as a mortgage) in the near future, you should keep this in mind.

Getting a mortgage with high credit card debt

While high levels of credit card debt often suggest warning signs, it’s not necessarily the be all and end all. 

As well as looking at how much you owe and your affordability, lenders will also want to know the spread of your credit (how many and what types of credit you owe).

This is because some types of credit are seen as riskier than others. 

For example, suppose you have one large debt of £20,000 for a car you use for work, which you’ve opted to pay off with your credit card because of cheaper interest rates. Provided you’ve kept up with the car repayments, this may not be a problem and some lenders may be happy to authorise a mortgage (provided you also pass their affordability check).

What if I have maxed out credit cards?

If you have a number of credit cards which are often maxed out and you have used up the majority of your available credit, lenders are likely to look at you less favourably.

Even if you’ve never missed a payment, lenders want evidence to prove that you are not too reliant on credit cards. If you do use a high number of credit cards, it’s likely that a mortgage lender will have extensive questions about your use of them before authorising a mortgage.

Each application depends on the circumstances, and every lender will have their own eligibility checks and requirements. Bear in mind that a mortgage application is not based on hard figures alone - most will be interested in the story behind the credit card debt.

If your credit report demonstrates a clean, stable history until the past year, when you were forced to max out a credit card or two for emergency home renovations. The odds are more likely to be in your favour if you can pinpoint a single, one-off event that has resulted in a high amount of debt being racked up, rather than a history of monthly overspending.

Will missed credit card payments affect a mortgage application?

Missed payments on any form of debt will make certain lenders view you as higher risk, which means some may offer unfavourable rates and others might turn you away altogether.

Depending on how long the missed payments have been on your file, and you have good reason for having missed them, specialist bad credit lenders may still offer you a favourable deal.

Will late credit card payments affect a mortgage application?

Possibly. While late payments are a less severe form of adverse than missed payments, a specialist bad credit lender will likely be required to get the best rates. They will want to know how long this issue has been on your file and why the payments were missed, as these factors could affect the rates you’re offered.

I have previously been declined a mortgage because of credit card debt: What are my options?

If you have credit card debt you will typically be faced with one of two options: 

  1. You may find a provider willing to loan to you, meaning you can go forward and purchase your property.
  2. If you already own your own your own home, you may decide to consolidate your credit card debt and remortgage.

Buying a home with existing credit card debt

As discussed, if you do manage to find a provider willing to give you a mortgage when you have existing credit card debt, it’s unlikely that you’ll have a vast array of lenders to choose from, so you may not get access to the most competitive rates, unless you seek specialist advice from a whole-of-market broker, like the ones we work with.

It’s also important to bear in mind that many providers will cap the amount they’re willing to lend to you, based on how much debt you have.

Consolidating credit card debt by remortgaging

If you already own your own home but are swamped with credit card debt, you may be able to consolidate this debt by remortgaging.

Consolidation means that all your debts are combined into one monthly payment. If you have a number of credit cards or loans, consolidation may be a good option to help simplify or lower your monthly payments - but it will not erase your debt. If your application is declined due to the amount of debt you have, a secured loan could be a good option to pursue as lenders can be more flexible.

Many lenders decline both purchases and remortgages, even if the debt is being cleared, based on your debt-to-income ratio. Some are happy with higher debts provided they are affordable alongside mortgage repayments and a few will consider authorising a new mortgage with your current debt, as long as it’s affordable.

If you’re looking to get a mortgage with high credit card debt and have already been declined by one (or more) lenders, don’t lose faith. If you find yourself in this situation, a whole-of-market broker can scour all mortgage lenders to find those lenders willing to  consider you given your circumstances. 

Call 0808 189 2301 or make a quick enquiry and we’ll match you with a specialist broker experienced in helping borrowers with all kinds of outstanding debts.

Should I clear off credit card debt before getting a mortgage?

If you have a plan in place to pay off your debt in full before you buy a property, or shortly after, some lenders may be willing to factor this into their affordability assessment. Which could open up more offers for you, or increase the amount you might be able to borrow for a mortgage.

However, many providers are skeptical of doing this as there is no definitive way to guarantee that you’ll manage to clear your debts in X number of weeks / months. 

Some may agree to subtract 50% from the debt amount, on the assumption that this is the amount you’ll pay off. Others will not subtract anything at all, on the basis that you will be repaying at the minimum rate.

Sometimes, closing credit card accounts can be detrimental to your financial health; if used responsibly, credit cards can be beneficial in demonstrating your ability to repay debt over time. 

However, if you have a number of maxed out credit cards settling the debt ahead of making a mortgage application is likely to weigh heavily in your favour. 

It’s important to remember that all forms of adverse credit stays on your credit file for a number of months or years, depending on the severity. So, even if you manage to clear your credit card debt, you aren’t automatically “erasing” your credit history - and mortgage lenders may factor these instances in when considering your application.

If you have any questions on this subject, contact us today and we’ll put you in touch with one of the specialist mortgage brokers we work with.

Other factors impacting eligibility for a mortgage with credit card debt

Additional adverse credit issues and credit card debt

Having additional cases of adverse credit on your credit report alongside credit card debt can hinder the likelihood of you being accepted for a mortgage even further. However, this will all depend on the circumstances surrounding the credit card debt, as well as the recency and severity of the other bad credit issues.

There are many different types of adverse credit and some are deemed more serious than others. Bankruptcies and repossessions, for example, are deemed far more severe than late payments

Although some providers are unwilling to loan to anyone who has been made bankrupt or had a property repossessed in the past, there are still some lenders out there who may consider offering a mortgage, albeit at far higher rates than the average borrower might be able to get.

Visit our bad credit page to see a breakdown of the most common forms of adverse credit, and the risk each poses on getting accepted for a mortgage.

Age and getting a mortgage with credit card debt

Older individuals tend to find it more difficult to secure a mortgage with credit card debt than younger borrowers.

Historically, many mortgage providers have put a cap on the maximum age of borrower they will lend to, or else a maximum term length for older borrowers. Similarly, if you’re retired, lenders will want proof that you have a source of sustainable income that will comfortably cover the repayments.

These days, many lenders have upped their lending limit to the age of 85, and some of the lenders we have access to with have no maximum age limit. However, if you’re experiencing adverse issues such as credit card debt, this may be an additional concern for potential mortgage providers.

As discussed, getting approved for a mortgage will depend on your individual circumstances, including the amount of credit card debt you have, affordability and repayment strategy.

Buy-to-let and second home mortgages with credit card debt

It’s rare that you’ll be able to obtain a mortgage for a BTL or second home if you have exceptionally large amounts of credit card debt, and already own your own home. 

However, there may be a few lenders out there who may be willing to consider you, depending on your circumstances and the severity of your debt. Get in touch and we’ll match you with one of the specialists we work with.

Speak to an adverse credit mortgage expert today

If you have any questions about applying for a mortgage with credit card debt and want to speak to an expert for the right advice, call Online Mortgage Advisor on 0808 189 2301 or make a quick online enquiry.

The service we offer is free and there’s no obligation. We help customers with situations similar to yours every day and because we work with experienced whole-of-market mortgage brokers, they have access to mortgages you won’t find on the high street.

Updated: 17th February 2020
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FCA disclaimer

*Based on our research, the content contained in this article is accurate as of most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The info on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs. Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.