Did you know that an average UK household has a credit card debt of £2500? Not just that, more than half of the households in major regions around England are also struggling with financial debt. And you thought you were alone in this? Absolutely not. Moreover, it should not stop your dreams of having your own house.
People with credit card debt can feel heavy with the burden of having to clear it. Applying for a mortgage with that tension? Too overwhelming. What if we tell you that the process could be much smoother? And that you can have the house of your dreams even with credit card debt? To do so, let’s first start with how credit card debt affects the prospects of a mortgage in the UK, and then come up with strategies to make the road ahead less bumpy.
Can I Get a Mortgage with Credit Card Debt?
Absolutely! Credit card debt is more common than you might think. However, before the lender assesses your situation, you have to do it first and understand a few things before applying.
Type of Debt
The type of debt can influence the decision of the lender. High-interest and revolving card debt will get more of a drastic reaction from mortgage lenders as it can be a big red flag. You can overshadow it with the green flags of a good track record of repayments. For example, if you have a personal loan with consistent make-on-time payments, that looks amazing on your part. It shows that you are worthy!
Mortgage Type
The mortgage market is huge and there is an array of options. These options unfortunately become smaller if the credit profile of the individual isn’t the healthiest. That does not mean you should be settling for less. It just means you have to search for the right one and a mortgage broker can be your matchmaker.
Total Debt and Income
Overall debt will be assessed, and that too in comparison with your income. So if you have a high and stable income, it can offset the effects of credit card debt, even a pretty large one. A good income makes you appear capable of handling your finances.
How Credit Card Debt Affects Getting a Mortgage
Credit card debts affect several factors in an application for a mortgage. A lot of these details come under the microscope and are assessed with scrutiny. To improve your chances, it’s important to understand these points first.
Credit Score
When lenders assess your application, credit score might be the number one thing they would take a look at. The higher your credit score, the higher the chances you have of being selected, that too with a lower interest rate. Now a high balance on your credit card hits your credit score pretty bad. Lenders aim for borrowers with low utilisation (the percent of total credit used from what’s available to you) as it reflects good credit management.
Affordability Checks
Affordability checks have been stricter than ever. This is crucial because lending money to risky borrowers doesn’t just affect the lenders but it can lead to a crisis in the overall economy. If you can pass this affordability check, you are qualified to manage mortgage payments comfortably even with credit card debt.
Deposit or Interest Rate Requirements
A low credit score or an outstanding debt takes away credibility from you, In order to make up for it, you may have to agree to a mortgage offer that has some more conditions than traditional mortgages. This could be larger deposits or higher interest rates. They can be shields for your lenders, and allow them to trust you more.
Tips on Getting a Mortgage with Credit Card Debt
Take a look at what you can do to tip the odds to your side and come across as a good applicant.
1. Reduce Your Debt Before Applying
Before you apply for a mortgage, it’s okay to take a step back and wait. Often times it is truly the patient who wins the race. Wait and consider paying down as much of your debt as possible. Your credit utilisation rate will improve and your DTI ratio will be lower. Both of these are key factors in getting a mortgage approval.
2. Seek Credit Card Debt Help
It is okay to struggle to manage repayments. There’s no shame in asking for help as they can open doors to support and good opportunities. Expert advice can help you make a plan and get you out of any financial turmoil. Seeking help is a step towards removing your current debt burden and making you an attractive borrower.
3. Increase Your Deposit
Save up and offer a larger (possible from your end, and nothing impractical) deposit. This eases a lender’s concerns over your debt obligations. You can also agree to a higher interest rate. However, do not settle for unfavourable terms as it may get you in more trouble than credit card debts.
4. Boost Your Income
The way to balance the DTI ratio is to either reduce the debt or increase your income. We understand that boosting one’s income isn’t the easiest but if you can take on extra work or seek a promotion, it will demonstrate to lenders that you are absolutely worthy of securing a mortgage.
5. Consider a Guarantor Mortgage
As we said, seeking help can be a good decision so try to get a guarantor. It is particularly a viable option if your credit card is high. Talk to a family member and close friend, and see if they agree and are capable of making your payments if you fail to meet them. This gives your lender a boost of confidence.
Conclusion
Remember that many people in the UK have credit card debt, and many have successfully secured mortgages despite it. It is time to plan your next steps to improve your financial standing. From reducing your DTI ratio to clearing your debts to seeking advice from experts about credit card debt and mortgage.
In UK Mortgage Finder, we have specialists who don’t judge but listen. With us, you can explore mortgage options specifically tailored for you and find the best way to homeownership.
