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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

Last updated: 22nd May 2019 *

Can you get a mortgage with credit card debt?

Some of the most common enquiries we receive are from customers who are looking to purchase their own home, but are worried that applying for a mortgage with credit card debt will stop them from being accepted.

The good news is that it is possible to get a mortgage with credit card debt or other forms of adverse credit, but you may be restricted as to how much you are able to borrow, and there are other factors which can impact eligibility.

We’ll be covering how credit card debt can affect your chances of mortgage approval, as well as the other individual circumstances lenders will take into consideration in this article:

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How do credit card debts affect mortgage applications?

If you’re wondering “can I get a mortgage with credit card debt?” - Yes, you can!

Most of us have taken out some form of credit in the past, whether that be for a mobile phone, car on 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.

How does credit card debt impact affordability?

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, as some forms are  deemed lower risk than other. 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.

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 establish if you can afford 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 and they should be able to offer the right advice on how much you may be able to borrow.

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, and while you may see a slight drop in your credit score initially, a single inquiry is unlikely to have a significant effect.

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), but it is always advisable to consider what you apply for and when.

Most mortgage providers may view multiple credit applications 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.

I Have high credit card debt: How does this impact my mortgage application?

While high levels of credit card debt often suggest warning signs, it is not necessarily the be all and end all. As well as looking at how much you owe and your affordability, lenders will 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 pass the affordability check).

What about if I have maxed out credit cards?

On the other hand, 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 a provider does consider you under these consequences, it is likely that you will face extensive questions about the use of them before authorising a mortgage.

Each application is all very much dependant 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.

Supposing that 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, for example.

Will missed credit card payments affect a mortgage application?

They will likely make certain lenders view you as higher risk, which means some may offer unfavourable rates and other might turn you away altogether.

Specialist bad credit lenders may still offer you a favourable deal, depending on how long the missed payments have been on your file and the reason they were missed (unforeseen life events are generally more excusable than financial mismanagement).

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, and 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 are offered.

I have been previously declined a mortgage based on credit card debt: What Are my options?

If you have credit card debt you will typically be faced with one of two options: you may find a provider willing to loan to you, meaning you can go forward and purchase your property, or, if you already own your own your own home, you may decide to consolidate the credit card debt and remortgage.

Buying a home with existing credit card debt

As discussed, if you do manage to find a provider that is willing to give you a mortgage when you have existing credit card debt(s), it is unlikely that you will have a vast array of lenders to choose from, and as such, 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 are 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 (again, so 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 out who consider you given your circumstances. Contact us and we can put you in touch with one of the specialists we work with.

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. This could potentially open you up to more offers, or raise the amount you could borrow for a mortgage.

However, many providers are skeptical of doing this as there is no definitive way to prove that you will 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, they can be beneficial in demonstrating your ability to repay debt over time. However, if you have a number of maxed out credit cards it is likely to count in your favour by settling the debt before a mortgage application, if possible.

It’s important to remember that all forms of adverse stay on your credit file for a number of months / years (depending on the severity), so in clearing your credit card debt you aren’t automatically “erasing” your credit history - and lenders may factor these instances in when deciding whether they are willing to lend to you.

If you have any questions on this subject, contact us today and we’ll put you in touch with a specialist.

Other factors impacting eligibility for a mortgage with credit card debt

Additional adverse credit issues and credit card debt

Having additional cases of adverse 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, some of which (such as bankruptcies and repossessions) are deemed far more severe than others (such as late payments, for example). 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.

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 experience more difficulty securing a willing lenders than younger borrowers do.

Historically, many providers have had 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.

The good news is that many lenders have now 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 are 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 of course all 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 is rare that you will be able to obtain a mortgage for a BTL or second home if you have credit card debt (especially for large amounts of debt), and already own your own home. However, there may be a handful of lenders out there who may be willing to consider you, depending on your circumstances and the severity of the adverse. Get in touch and we’ll pass you onto one of the specialists we work with to see if they can assist you.

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 0800 304 7880 or make an enquiry here.

Then sit back and let us do all the hard work in finding the broker with the right expertise for your circumstances. We don’t charge a fee, and there’s no obligation or marks on your credit rating.

Updated: 22nd May 2019
OnlineMortgageAdvisor 2019 ©

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.

Find out more about how we help people get mortgages with bad credit.

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