Will a Loan Affect Your Mortgage Application?

Get expert guidance on how personal loans affect mortgage applications and ways personal loans and mortgages can work together

Firstly, do you have any outstanding personal loans?

Home Mortgage Application Will A Loan Affect Your Mortgage Application?
Pete Mugleston

Author: Pete Mugleston

Mortgage Advisor, MD

Updated: March 13, 2024

Mortgage lenders like to avoid risk so, of course, they prefer applicants with no other debts. In today’s economy, those borrowers are very rare, and it’s normal to have taken out credit in some form.

So, while you may think that personal loans and mortgages are not compatible, you might have a better chance than you think. 

In this article, we’ll explain what possible impact a personal loan can have on your application and how a mortgage broker can help guide you through the process under such circumstances.

Can you get a mortgage if you’ve taken out a personal loan?

You can still get a mortgage with a loan, but it may reduce how much you can borrow. Lenders assess your debts versus income (debt-to-income ratio) to determine your mortgage affordability. A steady income, good debt management, a large deposit, and a strong credit score can improve your mortgage terms.

However, it’s also possible to have your mortgage application declined due to a personal loan.

This could happen because of various factors, such as:

  • The recency of the loan
  • The size of the loan
  • Your other debts
  • Your overall credit score
  • Your debt-to-income ratio

So, if you don’t already have a personal loan, you should think carefully about taking one out if you’re also thinking of buying a house. If you’ve already taken out the loan, approach your mortgage application with caution. If you’re declined on affordability this can temporarily reduce your credit score, affecting future applications.

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How personal loans can impact applications

If you’ve applied for a personal loan in the last six years, this will be shown in your credit report, which lenders will see when they assess your mortgage application.

The same applies to any other sort of financing, such as:

  • Credit cards
  • Overdrafts
  • Mobile phone contracts
  • Car financing
  • Utility contract

You don’t need to be debt-free to get a mortgage, in fact, most homeowners also have some of the above types of financing. However, mortgage lenders will be concerned if:

A personal loan that is small relative to your income, that you have been successfully repaying for more than three months, and that you’re on track to repay soon is unlikely to prevent you from getting a mortgage.

It could even help your application, as taking out a loan and repaying it on schedule shows that you’re a good borrower. Taking out a loan at a relatively low-interest rate to pay off higher-interest credit card debt can also improve your credit score.

However, large loans (relative to your income), recent loans (i.e. in the past three months), or loans that you’re struggling to repay can stand in your way. Each lender has its own method of assessing applications, so you’ll have a better chance with some lenders than others.

Note that if you take out a personal loan during your mortgage application, it could cause your application to be declined. This is the case even after you have a mortgage agreement in principle, or even after your mortgage has been formally approved if the lender runs another credit check. It’s best to wait until after completion to apply for credit.

How a mortgage broker can help if you have a loan

If you’re worried that your personal loan will prevent you from getting a mortgage, it’s a good idea to speak to a broker.

They can help in several ways:

Advising you on how to improve your credit score

A broker provides impartial, personalised advice, so they will help you understand how getting a personal loan can influence your credit score and what measures you can take to avoid this happening. A higher credit score could give you more lenders to choose from.

Avoiding declined mortgage applications

Your broker will also know how different lenders assess applications, so they’ll know which you have the best chance of success with if you have a loan. This will help you avoid a declined application (which temporarily impacts your credit score) and ultimately reach mortgage approval faster.

Helping you find the best deal

You might not qualify for the best rates advertised online, but there’s also no need to settle for a much worse rate because you have a loan. Your broker will compare all the mortgages you’re eligible for and advise you on which will be the cheapest overall (including any hidden fees).

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Personal loans and remortgage applications

Once you’ve paid off your personal loan, you might be able to remortgage to reduce your mortgage repayments. You’ll probably have improved your credit score and could have a wider choice of lenders.

If it’s time to remortgage and you haven’t yet paid off your personal loan, you shouldn’t worry. As long as you´ve been successfully paying off your loan since you originally secured your mortgage, it’s unlikely to be a problem. Since you now have more equity in your home, you might consider a debt consolidation mortgage.

This involves borrowing slightly more than your current balance and using the excess to pay off your personal loan. It could reduce your total debt repayments each month but might also increase how much you pay in interest overall, so seek advice if you´re not sure what’s best for you.

Should you avoid taking out a personal loan before remortgaging?

Unless the loan is absolutely necessary then it may be advisable to wait until after you have secured the best remortgage deal you can get before taking out any other forms of major credit.

This is mainly to ensure your loan application doesn’t impact on your credit score and subsequently hinder your remortgage plans.

Should you take out a personal loan or remortgage?

If you’re looking to raise equity, the choice here would really depend largely on how much money you’re looking to borrow. Usually, most lenders will allow a personal loan up to £25,000 but with shorter terms available than for a mortgage/remortgage. If you need to raise more than this then a remortgage might be the best option.

But if it’s less and you can afford the repayments over a shorter period, then the personal loan could be the best route to take as you’ll likely pay less interest overall.

Find a mortgage broker experienced in dealing with applicants with loans

While any broker will aim to give you the best advice for your situation, you’ll probably want to find one who has previous experience working with applicants who have personal loans. They´re likely to know more about the lenders’ different eligibility requirements and how to get your application approved.

We offer a free broker-matching service that’s designed to help you find the broker most able to help you. You only need to provide a few details to arrange a no-obligation chat with the broker we’ve matched you with. To try it, just call 0808 189 2301 or enquire online.

Maximise your chance of approval with a dedicated specialist broker

Get Started Phone Icon 0808 189 2301


You can get a personal loan immediately after buying a house, as long as a lender believes you can afford to repay it. Some may be less willing to lend to you very soon after you’ve taken on such a large financial responsibility, so waiting a few months could make it easier.

Most experts would advise you to wait until after you’ve secured your mortgage to apply for a personal loan. A good rule of thumb is that you should avoid opening a new line of credit for three months before applying for a mortgage and throughout the process.

Lenders will always ask you about the source of your mortgage deposit and the vast majority will not allow you to use a personal loan. There are a couple of exceptions, so you could speak to a broker to find out if this is an option in your circumstances.

Yes, it’s possible. In fact, remortgaging to consolidate debt is quite popular as it allows you to bring all your credit payments into one, easy-to-manage, monthly repayment. 

The downside though is that you will likely end up paying back more interest overall so it’s always best to consult with a mortgage broker before making any final decisions.

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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!

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Pete Mugleston

Mortgage Advisor, MD

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