Can You Get a Mortgage with Credit Card Debt?

The total credit card debt in the UK has grown by around 0.8 billion pounds recently, and these numbers are only getting higher.

You might think it will be hard if you have high credit card debt but and looking for a mortgage. Well, the truth is that it will be more complicated than if you had no credit card debt, but it is possible.

You’ll just need to help the lender evaluate your debt’s impact on affordability. Along with that, if you have a good credit score, stable income and a low debt-to-income ratio, then getting a mortgage should be a possibility.

Let’s see how.

Can You Get a Mortgage with Credit Card Debt?

Yes, you can get a mortgage with credit card debt in the UK. Lenders will assess your debt-to-income ratio to ensure you can afford the mortgage payments alongside your existing debts.

According to recent data, 34% of UK mortgage applicants have some form of unsecured debt, including credit card debt (source)

Lenders typically prefer your total debt repayments (including the mortgage) to be less than 40% of your gross monthly income however this will vary from lender to lender.

Keeping your credit card debt below certain amounts and ensuring timely payments can improve your chances of securing a mortgage.

How To Get A Mortgage With Credit Card Debt

Although it isn’t mandatory, the very first step to getting a mortgage with credit card debt is to find a mortgage broker who specialises in handling such cases. 

Next, either with the help of your broker or on your own, you’ll need to go through the following steps:

1. Determine The Amount You Can Borrow

This first step is usually the most problematic, as it can be hard to work out accurately. Here, you need the help of an expert who can factor in your credit card debt, along with other financial obligations, to determine the amount you’re eligible to borrow.

2. Evaluating Credit Reports

Afterwards, you must optimise your credit reports to withstand the lender’s scrutiny as this will allow you to see what they will see. A good credit report can go a long way towards helping you get approved for the mortgage.

3. Finding A Suitable Lender

Next, once you’ve got the above details in place, then you’re only left with comparing offers from different lenders and selecting the best one. 

Here also, you’re arguably better off with a mortgage broker by your side who can help you get the best deals.

How Negatively Does Credit Card Debt Affect A Mortgage Application?

Monthly credit card repayments will be considered as fixed outgoings from your income, which will decrease the disposable amount leftover. 

This will, in turn, increase your debt-to-income ratio and lower the amount you can borrow. 

A small amount of credit card debt that can be settled easily isn’t likely to harm your application. 

However, considerable debt, especially one spread across multiple credit cards, is bound to stand out as a red flag to lenders.

It’s interesting to note that if you’ve applied for multiple credit cards within a short span of time, lenders might also view your application negatively, as this will be seen as a sign of poor financial stability.

How Do Lenders Evaluate Credit Card Debt?

When evaluating your mortgage application in light of your credit card debt, lenders usually consider how the credit card repayments contribute to your credit utilisation rate and debt-to-income ratio.

The debt-to-income ratio tells lenders what percentage of your monthly income is tied up in monthly debt repayments. 

The credit utilisation rate is a percentage calculation of the credit card debt you actually have to the maximum debt you might have by maxing out all your cards.

Let’s illustrate this with an example. Suppose you have a couple of credit cards with a £3,000 limit each. 

So, the maximum credit card debt you could incur is £6,000. Now, if you have a £1,000 debt on one and £2,000 limit on the other, your credit utilisation rate is 50%.

How much debt will be considered too much debt? 

There’s no easy answer to this question, but the lower your credit card debt, the better. Usually, a credit utilisation rate of 30% or below is preferable for most lenders.

If your credit card debt is much higher than this, you may find your options limited. Even when a lender does agree to offer you a mortgage, the terms might include higher deposits and interest rates to offset the risk to the lender. 

Is It Better To Pay Off Your Credit Card Debt Before Applying For A Mortgage?

Yes, it can definitely help improve your chances of getting the application approved. But if your income is high and the debts are well managed, it shouldn’t matter too much whether you pay off the loan before the application. 

In fact, you might be better off using the money to put down a larger deposit, as this will save you on interest in the long term.

Can A High Credit Card Limit Impact A Mortgage Application?

No, it will not. As long as your utilisation rate is low, your application shouldn’t be negatively impacted. 

Even if you have spent on something essential like a medical emergency, it should not be considered a bad spend. However, lenders never consider irresponsible spending patterns favourably.

Frequently Asked Questions (FAQs)

1. How long do I wait to apply for a mortgage after getting a credit card?

Ideally, you shouldn’t even apply for a credit card if you know you’ll be looking for a mortgage within 3-4 months. The same applies to personal loans, as it might show up as a red flag with some providers so close to a mortgage application being submitted.

However, this is on a case by case basis and for a lot of applications if the overall profile is not positive it will not be a detriment.  

2. Is it possible to pay off my mortgage with my credit card?

We think it’s next to impossible. Lenders usually expect mortgage payments to be made through direct debits and will not accept credit card payments. 

3. Is it mandatory to declare my credit card debt when applying for a mortgage?

Yes, it is mandatory, as the lender will learn about it from your financial statements & credit bureau checks. Not disclosing your credit card debt can seriously impact your application and your ability to borrow in the future.

4. Can I get a mortgage with credit card debt if I’m a first-time buyer?

It might be harder to get the application through as first-time borrowers are considered more significant risks, and having credit card debt to go along with it might reduce your chances of getting approval.

Your home may be repossessed if you do not keep up repayments on your mortgage.

All content is written by qualified mortgage advisors to provide current, reliable and accurate mortgage information. The information on this website is not specific for each individual reader and therefore does not constitute financial advice.