Ever since the Mortgage Market Review came into force in 2014, mortgage lending criteria has tightened dramatically and all lenders must ensure that the borrowers can in fact afford the mortgage they are offered. Therefore, all mortgage applicants’ finances will be examined closely, including any and all debts they may have.
If you’re hoping to apply for a mortgage in the future and you have credit card debt, you may have some concerns about whether or not this will affect your chances of obtaining the mortgage you want.
Can I get a mortgage whilst having credit card debt?
Although having credit card debt may make the process of obtaining a mortgage a little trickier, it doesn’t automatically mean you won’t get one. How much debt that is acceptable will depend on each lender’s criteria, but as a general rule the lower your debt-to-income ratio (how much debt you have as a percentage to your income), the better.
Lenders will also look at how reliable you are as a borrower and whether or not you have made your credit card repayments on time or not. Missed or late payments can be a sign that you’re struggling financially and mortgage lenders may be more reluctant to lend to you.
Is it better to clear my credit card debt before applying for a mortgage?
The short answer: absolutely.
If you have any spare savings to use, then it is always a good idea to clear any existing debt you have. The rate of interest you will be paying on outstanding credit card debt is likely to be much higher than the rate of interest you would earn on your savings. Clearing your debt may also mean mortgage lenders will be more inclined to lend to you and it will improve your credit score which could help you get accepted for better mortgage rates.
What is the maximum amount of debt I can have when applying for a mortgage?
There are no specific rules on the maximum amount of debt you can have when applying for a mortgage as lending criteria varies between each lender, but it is usually better to clear as much as you possibly can before applying for a mortgage.
However, if you use the funds you saved for the house deposit to pay off your credit card debt, your reduced deposit may affect the rate of interested on your mortgage. The very best deals are offered to those who are able to obtain the lowest loan-to-value (LTV) which is essentially the proportion you are borrowing in relation to the value of the property.
How to increase your chance of a mortgage application approval
- Try to pay off as much debt as you can possibly afford
- Pay off more than the minimum amount each month and don’t miss a repayment
- Reign in your spending before applying for a mortgage and cancel any unwanted subscriptions
- Get all your paperwork in order, such as proof of address and the last 3 months payslips if you’re employed
Here at Mortgagez, our team of fully qualified mortgage advisers is on hand to help you every step of the way in obtaining a new mortgage, and our service won’t cost you a penny when you go via our online portal. Visit our website today and obtain a quick quote with our online mortgage rate tool to see how much you could save on your next mortgage.
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PLEASE NOTE: Article written 18th May 2021. Information contained within this article is likely to change and therefore should not be relied upon or form part of any form of decision making without seeking professional advice. *
YOUR HOME MAY BE REPOSSESSED IF YOU DON’T KEEP UP REPAYMENTS ON YOUR MORTGAGE
Any guidance and/or advice contained within this document is subject to the UK regulatory regime and is therefore restricted to consumers based in the UK. Any technical or regulatory information contained within this document was correct at the time of producing it but as it may be subject to change it should not be exclusively relied upon when making a financial decision. The Financial Conduct Authority does not regulate advice on Buy to Let mortgages.
Article written: May 2021 060121 MZ000198
