Can You Get a Mortgage With Credit Card Debt?

Having credit card debt does not rule you out of getting a mortgage. What really matters is whether the lender considers the debt manageable alongside your current income, expenditure and the mortgage repayments that you would be committing to take on.

As such, the difficulty of credit card debt is predominantly when the balances are high. A large amount of outstanding debt can increase your debt-to-income ratio and reduce your mortgage affordability. This could potentially limit your total choice of lenders or how much they would be prepared to offer.

In this article, we take a look at exactly how credit card debt can affect your mortgage application, how debt-to-income ratios are calculated and how much debt is too much for a mortgage lender. Let’s begin.

Can Mortgage Lenders See Your Credit Card Balances?

As part of the mortgage application process, lenders will complete a credit check. This helps them assess your existing debts and determine whether your finances could comfortably manage both your current commitments and the additional repayments of a mortgage.

The credit check will usually use information provided by one or more credit reference agencies, giving the lender access to details about your credit accounts, outstanding balances and repayment history.

When applying for a mortgage with credit card debt, you will also be asked to declare any existing debts when applying for a mortgage, and this will usually include the balances held across all of your credit cards. Lenders can compare the figures you provide against the information held on your credit report and so it is important to be as honest and accurate as possible when declaring your total debt.

If there are discrepancies or the lender finds a significant difference between your declared debt and the debt recorded on your report, this can cause delays in your application. This can be particularly important when requesting an Agreement in Principle (AIP), which is an initial estimation of how much a lender may be prepared to lend based on the information available at that stage.

With that said, a difference in the balances does not necessarily mean that you have provided incorrect information. Credit reports are not updated in real time, so you may have recently paid down a card balance that is still showing at its previous level. If this happens, your mortgage broker can explain the discrepancy to the lender and provide evidence of the updated balance.

Should I Check My Credit Score Before Applying for a Mortgage?

Checking your current credit score and debt-to-income ratio is not a lender-specific privilege. In fact, if you are considering getting a mortgage with credit card debt,  it can be beneficial to check your own credit reports first to make sure the information held about your credit cards and other debts is accurate.

The three main credit reference agencies in the UK are:

• Experian
• Equifax
• TransUnion

Checking your own credit report is considered to be a soft search, which will not affect your credit score and is not visible to lenders in the same way as a credit application. By comparison, a hard credit check leaves a record that lenders can see. Multiple hard searches within a short period could affect your credit score.

How Does Credit Card Debt Affect Getting a Mortgage?

Credit card debt and mortgage affordability go hand-in-hand. As a mortgage is another type of debt, lenders are trying to assess whether or not you could comfortably take on further borrowing.

As such, a relatively small credit card balance that is being managed alongside your income will likely have a limited impact on your mortgage affordability. The concern grows when there are high balances across several cards or other forms of debt.

Simply, from a lender’s perspective, the more of your income that is already committed to existing borrowing, there is less available funds to reliably cover the future mortgage repayments.

It is also worth noting that large balances across multiple credit cards can raise questions about your current financial circumstances, especially if the borrowed funds are used to cover everyday expenditure.

Lenders will also look at your credit utilisation ratio. For example, owing £4,000 on a £5,000 credit limit looks significantly riskier to a lender than owing £4,000 across a £20,000 limit, as high utilisation directly impacts your credit score.

While credit card debt will not necessarily mean your application will be declined, where the overall level of debt appears unsustainable against your income, lenders may be less willing to approve a mortgage application.

Ultimately, how credit card debt affects getting a mortgage will depend on the amount you owe, your income and the wider picture of your finances. This is why two applicants earning the same amount could receive very different mortgage affordability assessments depending on their existing debts.

How Do Lenders Calculate Your Card Payments?

Credit cards are treated differently from fixed-term borrowing, such as personal or car loans. While a fixed-term loan will usually have a set monthly repayment over an agreed period, credit card repayments can fluctuate. This is the main reason why the outstanding balance of debt is most important to lenders when assessing affordability.

Rather than simply relying on the minimum payment shown on your credit card statement, a mortgage lender will generally use the total outstanding balance to calculate an assumed monthly commitment for its affordability assessment.

The exact calculation varies between lenders. This is important when applying for a mortgage with credit card debt as the credit card debt could actually be viewed differently, depending on the lender and their specific affordability criteria. This is why speaking to a whole-of-market mortgage broker can be useful if you have existing credit card debt.

Because different lenders will assess the same mortgage application in different ways, factors like credit card debts can naturally affect both your borrowing power and the mortgage products available to you. A broker can compare these criteria across the market to identify lenders that are better suited to your current financial circumstances.

How Much Debt Is Too Much for Mortgage Lenders?

Asking “how much credit card debt is acceptable for a mortgage?” might sound like a complicated question at first, but the answer is relatively simple. It largely comes down to your debt-to-income (DTI) ratio.

Your DTI ratio compares the amount of debt you currently owe against your income. This provides an indication of how heavily indebted you are relative to what you earn.

As a result, there is no single amount of debt that is considered too much. How much you can have while still securing a mortgage will depend on your income, existing commitments and overall affordability.

For example, let’s look at how a £10,000 credit card debt could result in very different debt-to-income ratios depending on the applicant’s income.

As the table shows, although all three applicants have the same £10,000 credit card balance, the DTI ratios change according to their available income. This helps demonstrate why lenders will review all existing debt within the context of an applicant’s wider financial profile, rather than looking at the balance of debt alone.

With that said, lenders do not assess your DTI ratio in isolation. They will also consider your expenditure, other financial commitments and the affordability of the proposed mortgage. High credit card balances alongside other debts could therefore have a much greater impact than the credit card balance alone.

Ultimately, it is still possible to get a mortgage with high credit card debt. However, the higher your existing debts are in relation to your income, the more likely it is to restrict how much you can borrow and the lenders available to you.

Can You Buy a House With Credit Card Debt?

It’s important to understand that having existing credit card debt and using credit to fund your house purchase are two different things.

While an existing debt can affect your overall affordability and how much you can borrow, it does not necessarily prevent you from securing a mortgage and buying a property.

Crucially, your mortgage deposit is different.

Lenders want to know exactly where your deposit funds have come from, and money that is borrowed is generally not an acceptable source to fund a deposit. This can include repayable loans from family members or friends, although a gifted deposit may be accepted subject to the lender’s criteria.

Therefore, when buying a house with credit card debt, you should always be prepared to evidence where your deposit has come from alongside declaring any existing credit commitments in your mortgage application.

Can You Consolidate Credit Card Debt Into a Mortgage?

Debt consolidation involves increasing the total amount of mortgage borrowing and using the additional money to repay your existing debts. For example, if you have several credit card balances, you could potentially clear all of these when remortgaging and combine the borrowing into your mortgage.

The main appeal of consolidating debt into a mortgage is often due to the difference in interest rates. Credit cards can charge considerably higher rates than mortgages, so combining credit card debt with mortgage borrowing can help to reduce the rate being charged on that portion of your debt, simplifying your monthly commitments and outgoings.

To show how this can work in practice, the table below shows what can change when you consolidate existing credit card debt into your mortgage:

A key point that the table highlights is that a lower interest rate does not automatically mean that the debt will cost less.

Mortgages are commonly repaid over many years, whereas credit card debt may be cleared over a much shorter period. As such, if you move that debt onto your mortgage, you could pay a lower interest rate but for a much longer period of time. This means you could still pay more interest overall.

There is also another important consideration to keep in mind. While credit card debt is normally unsecured, your mortgage is secured against your home.

By consolidating credit card debt into your mortgage, you are therefore moving unsecured debt into borrowing secured against your property. This means that if you later struggle to keep up with your mortgage repayments, your home could ultimately be at risk of repossession.

Ultimately, if you’re considering remortgaging to consolidate your debt, it is important to compare the total amount you could repay over the full mortgage term, any fees involved and the added risk of securing the debt against your home. What looks cheaper each month may not necessarily cost you less in the long run.

How Will a Broker Assess Your Affordability Before You Apply?

Rather than looking at your debt, income or deposit in isolation, a mortgage broker will build a complete picture of your finances. From this, they will be able to assess how much you may realistically be able to borrow, before comparing the affordability criteria of different lenders to identify those best suited to your circumstances and goals.

When applying for a mortgage with credit card debt, a broker can also help you understand your position before approaching a lender. For example, they can assess whether reducing an outstanding balance could meaningfully improve your borrowing potential, or whether your current level of debt is unlikely to prevent you from proceeding.

At Boon Brokers, our expert advisers offer fee-free mortgage advice and can compare mortgage options across the market. If you are looking at getting a mortgage with credit card debt, speaking to a trusted broker can help you understand all of your options, how much you may be able to borrow and which mortgage is best suited to your circumstances.