The mortgage process can be overwhelming. It’s even more stressful if you’re worried about getting approved with credit card debts. In 2020, the average UK household had over £2,500 of credit card debt, so you’re not alone.
In this Guide, we’ll look at how debt affects your mortgage application, and how to maximise your chances of getting accepted.
Yes, you can absolutely get a mortgage with credit card debt! Life is unpredictable, and sometimes you need to use your credit card to pay for certain things.
The good news is, having loans or credit cards won’t stop your application in its tracks. However, the size of your outstanding balances could affect how much you can borrow.
Mortgage lenders look at a number of different factors when deciding whether to give you a mortgage. Things such as your income, the size of your deposit, and your credit history will all influence whether or not you’re approved. Lenders will also check how good you’ve been with making your credit repayments.
Yes, you can get a mortgage even if you’re using your bank account overdraft. It’s unlikely you’ll be refused just for that reason. If you meet the rest of the mortgage lender’s criteria (such as stable income and decent credit score) then you shouldn’t struggle to be accepted. If you’re worried about big credit card balances or a frequently used overdraft, it’s a good idea to get expert advice from a mortgage advisor.
It’s a mortgage myth that if you have any sort of debt then you can’t get a mortgage. That’s just not true! Mortgage lenders will look at a number of different things when they review your application. When reviewing your debts, lenders will check:
The type of debt you have
What’s caused the debt
If your debts are negatively impacting your financial situation
Mortgage lenders will use something called a ‘debt to income ratio’. This ratio is a percentage which indicates how much debt you have compared to how much you earn. Different lenders will have different limits for debt to income ratios, but the lower your percentage, the more likely you are to be accepted.
Bad credit or a high debt to income ratio, shouldn’t stop you from applying for a mortgage. Everyone’s situation is unique and there are many different factors that can affect your debt-to-income ratio. Often, you need to work with a specialist mortgage broker to help you if you have a high debt-to-income ratio, bad credit or a low credit score. They’ll be able to help you even if you’ve been refused a mortgage elsewhere.
When you apply for a mortgage, lenders check to see how much credit you have at your fingertips, and how much of it you’re actually using. This is known as ‘credit utilisation’. Banks work this out by dividing your current debt by your available credit limit. As a general rule, it’s best to try and keep this under 30%. But it’s not game over if your percentage is higher than this, you’ll probably just need to find the right lender. A mortgage broker can help you do this.
It’s a good idea to keep track of your credit report regularly to see where you stand and what you can do to improve. We recommend using checkmyfile - they’ve been around for over 20 years helping people to understand the credit system.
The mortgage world has changed for the better since the 2008 housing crash. These days, mortgages are stress-tested rigorously before an application is approved, and affordability checks are a crucial part of the application process.
As part of your affordability assessment, mortgage lenders will look at your monthly debt repayments (credit cards, bank charges, loans). They’ll add these commitments to your monthly expenses and measure this against your income. Lenders want you to be able to make your mortgage repayments without struggling. If you’ve got plenty of wiggle room after your monthly outgoings, then you’re more likely to be accepted.
Mortgage lenders might be hesitant to lend to you if you have a lot of credit cards and have used most of your credit limit. Even if you’ve been a superstar with your repayments, you’ll need to work hard to prove you’re not too reliant on credit cards to get by.
A one-off event that caused a lot of debt to mount up will be looked on more favourably than if you’re regularly overspending.
Each mortgage lender does things differently - they’ll all have their own way of checking if you’re eligible for a mortgage. There are specialist lenders who will consider your application on a case-by-case basis. They’ll want to understand your story, not just view you as numbers on a screen. Specialist lenders aren’t usually available to you directly as a borrower, they only work with specialist mortgage brokers. The brokers we work with live and breathe the mortgage market. They’ve seen it all, and will know how to find the right solution for you. Make an enquiry.
If you're planning to use your mortgage to settle your debts, some lenders may be willing to consider this when doing your affordability assessment - even if you’re a first time buyer. If they agree, you could in theory borrow more than you would if you weren't clearing the debt. Not all lenders will offer this though, and some might make paying off your debt a condition of your mortgage.
The mortgage world can be pretty overwhelming. If you're thinking about using your mortgage to clear your debts, you'll need to apply to the right lender. That's where we come in! We'll match you to your ideal mortgage broker, who'll search the entire market for the best lender and mortgage for you. Get started.
It's definitely possible to get a mortgage with a Debt Management Plan (DMP), but you'll have fewer options than if you had a perfect credit score.
To get a better mortgage deal, you generally need a good credit score and a decent-sized deposit. This can be harder to achieve if you have a DMP. Every time you make a repayment on your DMP, it can appear as an 'underpayment' on your credit file. Even though you have an agreement with the people you owe money to, your monthly repayments are generally less than the minimum required. This gets recorded as defaulted payments, and lowers your credit score further. Read more in our Guide: Mortgages With a Debt Management Plan.
There are specialist mortgage lenders who have experience lending to people with credit issues like DMPs. You’ll just need the right mortgage broker to find you one of these lenders. We can help with that! Make an enquiry to get matched to your ideal broker.
Work on your credit score
The best thing to do with debt is to face it head-on. Find out where you stand by checking your credit report. We recommend using checkmyfile - it’s the UK's most detailed and trusted credit report. There’s some surprisingly simple things you can do to boost your credit file, including correcting any errors and updating your details. Read more in our Guide: How to Improve Your Credit Score Before You Apply for a Mortgage.
Get on top of your repayments
Make sure you’re paying at least the minimum on your credit cards each month. The more you can pay the better, and paying it in full is ideal. If you can’t clear the whole balance, paying a set amount each month means you’ll chip away at your balance much faster than if you just paid the minimum due. Don’t forget about your household and utility bills too - any missed payments will impact your credit score.
Don’t apply for credit leading up to your mortgage application
Every time you apply for a loan or credit card, a ‘hard search’ appears on your credit file. This can then be seen by any creditors you apply to, including mortgage lenders. Hard searches cause your credit score to temporarily drop, and if you’ve got lots of them in a short space of time it can be a red flag to mortgage lenders.
Try not to apply for anything in the few months leading up to your application, and if you absolutely have to, make sure you’re not doing multiple applications.
Use a mortgage broker
The mortgage market can be pretty daunting. Mortgage brokers live and breathe the market - they’ll know which mortgage is right for you, and which lenders are most likely to accept you in your unique situation. They’ll also be there to protect you, and step in if there’s any issues. The brokers we work with have seen it all, and aren’t judgemental. Make an enquiry to get matched to a broker.
Over 50% of mortgages for people who are self-employed or have bad credit aren’t available directly to you. They’re only available through specialist brokers. Using our platform guarantees you’ll be matched with a broker who has a proven track record of making mortgages possible for people like you. Less processing, more understanding.
Applying for a mortgage or understanding your options shouldn't be confusing, yet there are just so many myths doing the rounds and it's not easy to know where to turn to get the right advice.
Our calculators give you an idea of what you might be able to borrow, what's affordable and a rough estimate of the kind of property prices you can start to look at.