Getting A Mortgage When In Debt

If you have debt but wan't a mortgage, see how a dedicated Mortgage Broker can help you secure the best possible rate

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Home Mortgage Application Getting A Mortgage When In Debt
Pete Mugleston

Author: Pete Mugleston

Mortgage Advisor, MD

Updated: April 4, 2024

In this article, we’ll explain how to get a mortgage when in debt, what level of debt is acceptable and why using the services of a mortgage broker with experience in this area can help boost your chances of success.

Can you get a mortgage with debt?

The short answer is yes. It is unrealistic for lenders to demand that every one of their borrowers is without any kind of debt before they’re willing to grant them a mortgage. Such is the fabric of modern-day financial norms and necessities, very few people would be able to get on the property ladder if they had to be completely debt-free first.

Lenders realise that people have student loans to pay off, car financing commitments, credit card bills to settle and various other personal loans over their heads they may have needed in the past, so luckily they don’t have a blanket approach to debt.

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How much debt is acceptable?

How much debt and how you’re managing it will be key to how successful you are in securing a new mortgage. The lower your debt-to-income (DTI) ratio (how much your loan repayments are compared to your wage or other income every month), the better position you’ll be in.

Similarly, if you can prove you’re managing those repayments well, and if you’re coping financially to the point that there is plenty of leeway in your cashflow for another debt on top of that – your mortgage – without any perceived risk, then your application will be far stronger.

A good mortgage broker, like the ones we work with, can help you to look at your personal circumstances in greater detail, but as a general rule of thumb, if your DTI is less than 20%, you will face fewer hurdles and probably secure a better deal than if it was 50%.

Work out your debt-to-income ratio

Understanding whether your DTI would be considered low, medium or high will help you get prepared before you go ahead with a mortgage application. Input your details into our calculator to get a better idea of how lenders might assess you.

Debt to Income Ratio Calculator

This calculator allows you to calculate your debt-to-income ratio and will indicate whether mortgage lenders will classify it as low, medium, or high risk.

The amount you get paid each month, after any taxes or contributions have been deducted
Be sure to include all of your fixed outgoings, as well as any loans or credit card payments you make

Your Results:

Your Debt to Income Ratio is %

Good news! Most mortgage lenders will class your debt-to-income ratio as low. You’re unlikely to be declined for a mortgage based on your outgoings, but speaking to a mortgage broker before applying is still recommended as they can improve your chances of getting the best deal.

Most mortgage lenders will class your debt-to-income ratio as moderate, which means some of them might view your application with caution. Some lenders are much more strict than others when it comes to affordability and debt, so it’s important for you to find a lender who’s more lenient. You should speak to a mortgage broker before you apply to ensure you’re matched with a lender whose criteria you fit.

Most mortgage lenders will class your debt-to-income ratio as high. But that’s where we can help! With so much of your monthly income going towards debt repayments, you could struggle to get approved for a mortgage without the help of a mortgage broker. We can help you find a lender who’s more lenient on debt and affordability, and could still secure a mortgage approval.

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Does the kind of debt you have matter?

Yes, the nature of your arrears could have a bearing on how lenders consider your application, and there is certainly a perspective of ‘good’ and ‘bad’ debt. For example, student and car loans are usually perceived as everyday-type financing, whereas stacked-up store and credit cards or payday loans are often viewed negatively. In fact, some lenders will insist that any payday loans must have been cleared before they’ll consider your mortgage application.

You’re likely to struggle more to get a mortgage if you’ve had bad credit in the past, such as a County Court Judgement (CCJ) or have been declared bankrupt but it’s not impossible.

Is it better to pay your debts off before applying for a mortgage?

Being financially stable is always the best course of action when it comes to taking on a mortgage. You’ll likely have a better credit score if you don’t have debts, and will be considered a more attractive borrower and may be rewarded. However, as long as you are proving you are staying on top of your financial commitments, it’s not necessarily crucial that you pay off your debts first.

How long should you wait to apply?

This depends wholly on what kind of debt it is and how much it is. Your broker will be able to advise you further on this, but if you find your debts are an obstacle to getting your mortgage approved, generally, your credit report might only take a month or so to update once you’ve settled a debt, with the improvement you need in your credit score showing to lenders too.

How to get a mortgage with outstanding debt

If you’re applying for a mortgage with outstanding debt, make an enquiry with us so we can match you with a mortgage broker who specialises in helping customers in this exact situation. The advisor we handpick for you will guide you through the following steps to full application…

  • Downloading and optimising your credit files.  This will allow you time to remove any inaccurate or outdated information that could further hinder your application
  • Gathering your paperwork and preparing the documents you’ll need. Any proof of income – payslips or certified accounts if you’re self-employed, bank statements and proof of I.D. required
  • Finding the right mortgage lender. Your broker will be able to identify lenders who look more favourably on applications from someone who has some outstanding debt

How to improve your chances of getting a mortgage

In addition to the steps outlined above, there’s a number of other actions you can take, such as:

  • Reviewing all of your outgoings and removing anything that’s not necessary, reducing your overall debt-to-income ratio
  • Using any savings you have (outside the amount needed for a deposit) to reduce your current debt level
  • Review your credit records on a regular basis to make sure all the information held is accurate
  • Make sure all your debt commitments are paid on time and don’t fall into arrears.

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Best lenders for high debt-to-income ratio

There are mortgage lenders who won’t accept anyone with a DTI that’s above 25%, such as Beverley Building Society, 35% (e.g. Progressive Building Society), 40% (e.g. United Trust Bank) or 50% (e.g. Norton Home Loans, HSBC), however, the majority do not stipulate an upper limit.

Instead, they simply outline that each application will be considered on an individual basis when assessing affordability and level of debt.

Those with no upper limits range from big high street names, such as Nationwide, NatWest, Santander, Metro Bank, Halifax and TSB, to more niche lenders such as Teachers Building Society, Pepper Money, Accord Mortgages and Precise Mortgages.

Remortgaging with outstanding debt

The same rules apply when remortgaging as it does if you were applying for one initially. That is, you are not immediately discounted for a mortgage if you have debts. Instead, lenders will take into account the level and nature of debt involved, your DTI and how you manage the repayments.

It might be worth speaking to your broker about considering a debt consolidation remortgage, which can be an option so long as loan-to-value ratios are not exceeded and whether it falls within a lender’s approval criteria for how the debt was accrued.

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Speak to a broker experienced in dealing with debt and mortgages

All is not lost when it comes to getting approved for a mortgage, even though you have debts still to repay. There are options and, crucially, lenders mostly operate an individualistic approach to applicants, which means the stronger your application, the better position you’ll be in.

The specialist brokers in our network offer an impartial, expert and supportive hand to clients who are ready to start the process of making an application to finance a house purchase. With unparalleled contacts and experience, they can work with you to ensure the very best outcome. Call us on 0808 189 2301 for a free initial consultation, or make an online enquiry for details.

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About the author

Pete, an expert in all things mortgages, cut his teeth right in the middle of the credit crunch. With plenty of people needing help and few mortgage providers lending, Pete found great success in going the extra mile to find mortgages for people whom many others considered lost causes. The experience he gained, coupled with his love of helping people reach their goals, led him to establish Online Mortgage Advisor, with one clear vision – to help as many customers as possible get the right advice, regardless of need or background.

Pete’s presence in the industry as the ‘go-to’ for specialist finance continues to grow, and he is regularly cited in and writes for both local and national press, as well as trade publications, with a regular column in Mortgage Introducer and being the exclusive mortgage expert for LOVEMoney. Pete also writes for Online Mortgage Advisor of course!

Read more about Pete

Pete Mugleston

Mortgage Advisor, MD

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