Almas Uddin
Founder and Mortgage Advisor
04 Dec 2023
Getting a Mortgage With a Credit Card Debt
Millions of people have some debt, and having a credit card isn't unusual. However, if you have lots of short-term obligations or a substantial credit card balance, it can pose a problem when applying for a mortgage.
Here we'll explain how lenders view credit card debt and what factors will impact your likelihood of being approved for a mortgage.
For more help with finding a mortgage alongside credit card debts, give the mortgage advisors team a call on 0330 304 3040, or drop us a message at [email protected]
Can I Get a Mortgage If I Already Have Debts?
In most scenarios, yes, you can get a mortgage even if you have a bad credit history. A lot depends on what sort of debt you have and whether that means the lender will limit the amount you can borrow on a mortgage.
Each lender will assess your application for affordability - they will look at your monthly credit card payment and deduct that from your income to work out how much you can afford to repay.
Provided you earn enough to pay back the credit card and cover your mortgage costs, you shouldn't have too much difficulty finding a mortgage.
Some lenders have strict criteria around short-term debts, so it is vital to consult an independent broker who can help evaluate your debt to income ratio and recommend the best solution.
How Important is Credit Card Debt on a Mortgage Application?
If you have other debts, the lender will need to check how well you manage your finances. For example, if you have multiple credit cards and are up to 100% of the balances, it may indicate that you aren't financially stable.
The affordability assessment will look at your credit card repayments to determine a cap on the mortgage they can offer.
For example:
- You have a credit card with a £5,000 balance.
- Each month, you need to repay a minimum of 3% of the balance.
- The cost per month is £150, and this is deducted from your income to arrive at an affordability assessment.
Can I Get a Mortgage if I Have Recently Applied for a Credit Card?
Every credit application requires a credit check, and this applies to both credit cards and mortgages. The credit card provider may run a hard or a soft credit check - hard credit checks remain on your credit file and are visible to a mortgage lender.
Having an application on record won't make a lot of difference to your mortgage application, but each check will usually mean your credit score drops slightly.
In some cases, having a credit card can be seen as a positive. Not having any credit score at all is almost as complicated as having a bad rating. Provided you can demonstrate responsible borrowing and that you're not taking out more loans on credit cards than you can repay, they aren't usually a big problem.
Can I Get a Mortgage if I Have Heavy Debts on Credit Cards?
Possibly - it depends on how much you owe and across how many accounts.
Some types of credit are less risky than others. For example, a car repayment financed through a low-interest credit card isn't as high risk as excessive retail spending.
If you have credit cards maxed out to their limits, it might be more of an issue. Using 100% of the debt facility can present a potential risk factor.
Should you have heavy debts and have missed some of the payments, it will undoubtedly make a mortgage harder to secure and may mean you are offered less competitive rates from those lenders who are prepared to make an offer.
What Can I Do if my Mortgage has been Rejected Due to Credit Card Debt?
There are lots of options available. The best action is to give the Revolution Broker team a call - our whole-of-market team can negotiate mortgage borrowing on your behalf in almost any adverse credit scenario.
The key is to find a lender who will accept a bad credit applicant and look at ways to reduce the risk. One option is to consolidate the debt into a mortgage.
Can I Consolidate Credit Card Debt in a Remortgage Application?
You can indeed. It's a common way to leverage the equity in your home to repay short-term debt and get your finances back under control.
By remortgaging, you either increase your mortgage value or take out a new mortgage to pay back the existing one. The balance is increased to cover the repayments of your credit card debt.
Is it Best to Pay Back my Credit Cards Before Applying for a Mortgage?
If you don't have any credit card debt but have a healthy credit rating, your application will be looked on more favourably.
However, it all depends on the circumstances.
Should you have an adverse credit rating and have arrears on file related to your credit cards, these will show on your credit report for up to several years, even if you have since repaid the debt. In that scenario, it might be beneficial to keep the savings and use them for a larger mortgage deposit.
What are the Other Eligibility Factors in Getting a Mortgage with Credit Card Debts?
Affordability and eligibility are just part of the lender assessment process for mortgage applications.
They will consider what sort of credit issues appear on your file, when they occurred, how serious they were, and if you have since repaid your borrowing.
Lenders will also look at your age, with some having upper age limits on the maximum age they will lend to - usually around 85, although not all mortgage providers have limitations.
Applicants with credit card debt approaching the age cap will find it more challenging to be approved for a mortgage.
Another factor is the type of property you are buying. If you are taking out a residential mortgage to purchase a home, your credit rating will be vital in whether a lender approves your application.
Suppose you want to mortgage a buy to let investment or purchase a second property. In that case, you're less likely to be approved if you have substantial credit card debts - unless you consult an experienced broker who can negotiate terms with a specialist bad credit lender.
Expert Advice on Mortgages with Credit Card Debt
Having pre-existing debts in no way means you won't be able to find the mortgage you need. Give us a call on 0330 304 3040, or email at [email protected] for an independent assessment of your circumstances.
Our team is whole-of-market with extensive experience in all types of credit scenarios, so we are on hand to help you identify the right lender and mortgage product for your needs.
.webp)
.webp)
.webp)
