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Mortgages and Remortgaging with Existing Debt

Getting a mortgage or remortgaging can be confusing at the best of times. Throw into the mix some existing debts and it’s even more of a headache. 

But it can be made simple. MoneyNerd is here to provide clear information when you want to get a mortgage with existing debt, or if you wish to remortgage with existing debt.

What is classed as a debt for mortgage purposes?

A mortgage lender classifies debt as any money that you owe to another party, such as:

  1. Personal loan debt
  2. Credit card debt
  3. Store card debt
  4. Catalogue debt or Buy-Now-Pay-Later debt
  5. Bill or rent arrears
  6. Student loans
  7. Court fines

Don’t worry, here’s what to do!

There are several debt solutions in the UK, choosing the right one for you could write off some of your unaffordable debt, but the wrong one may be expensive and drawn out. 

Fill out the 5 step form to find out more.

Could you legally write off some debt? Answer below to get started.

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How much debt do you have?

This isn’t a full fact find, MoneyNerd doesn’t give advice. We work with The Debt Advice Service who provide information about your options.

Does debt matter when getting a mortgage?

Yes, the amount of existing debt you have is considered by mortgage lenders when they assess your mortgage application. 

The good news is that you can still get a mortgage with existing debt. A mortgage application considers more than just debt. 

How does personal debt affect a mortgage?

Personal debts affect your debt-to-income ratio, which is the amount of money you have to pay out for existing debts against the amount of money you earn

Thus, debts reduce your disposable monthly income and could therefore reduce your mortgage borrowing power, i.e. how much the mortgage lender is willing to loan you. If your debts are too high, you could be rejected for a mortgage.  

Why do mortgage lenders care about your mortgage repayments?

Mortgage lenders care about how much your monthly mortgage repayments will be because the lender has a responsibility to make sure your mortgage repayments are affordable for you. 

To ensure mortgage repayments are affordable, they must consider existing debts and the repayments you make on those debts. 

Lenders also “stress test” these repayment calculations to make sure you can still afford the mortgage should the interest rate rise in the future

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Do mortgage lenders care about payday loans?

Yes, mortgage lenders do want to know about any payday loan you have still to repay. These debts will be considered within the debt-to-income ratio. 

Do mortgage lenders care about credit card debt?

Yes, credit card debt is considered by mortgage lenders. The amount of debt you have on existing credit cards will need to be factored into affordability checks. 

But try not to panic as many people get a mortgage or remortgage with an existing credit card. We discuss remortgaging with debt in further detail towards the end of this page. 

Does the amount of credit I use matter to mortgage lenders?

Credit card debts are less likely to negatively affect a mortgage application if you have a low credit utilisation ratio. 

First, what’s a credit utilisation ratio? It’s the amount of credit you’ve used on your credit card compared to how much credit you’ve been approved for on the credit card (your credit limit). If you have a high credit utilisation ratio, it means you have spent a lot of the credit you’ve been approved for. 

Your credit card debt is less likely to be a problem on a mortgage application if your credit utilisation is 30% or less. Although we should state that many other factors contribute to a mortgage decision. 

For example, if you have been approved for £1,000 of credit on the card but have only used £200 (20% credit utilisation), this will typically be less of an issue. Learn more in this guide discussing credit cards and mortgages

Why? It’s because it shows you aren’t relying on credit and might be using the card for other benefits, such as to improve your credit rating or gain loyalty points on a scheme.

Can you get a mortgage with outstanding debt?

The key takeaway is that you can get a mortgage with outstanding debts. Scores of people get approved for a mortgage with debts still to pay, but it will depend on your specific circumstances.

You’re less likely to get approved if you’ve had multiple debts and arrears that led to a court order to make you pay. Or if you used an insolvency debt solution to start afresh from debt. 

But even in these situations, there is still potential to clear debts and get a mortgage after rebuilding your credit report. 

How much debt is OK for a mortgage?

How much debt you can have and still get a mortgage will depend on your personal situation because your debt-to-income ratio is also dependent on your personal monthly income. 

But to give you a quick answer, in many cases (not all!) your DTI ratio should be 36% or lower with no more than 28% going towards mortgage repayments. 

We have covered this question in much more detail in our How Much Debt Can I Have and Get a Mortgage? Post. Check it out for the details. 

How much mortgage can I borrow if I have debt?

The amount you can borrow on a mortgage will be reduced if you have debt. This is because some of your income is required to keep up with these debt repayments. How debt affects your borrowing power will depend on personal circumstances, such as your income.

There are other things that can also affect your borrowing power, such as how many children you have, and don’t forget about any student loan repayments! 

Is it better to pay your debts off before applying for a mortgage?

Paying off debts before applying for a mortgage will improve your debt-to-income ratio and credit score, which can:

  1. Increase your chances of getting approved for a mortgage
  2. Increase the amount you can borrow on a mortgage

However, paying off your debt might reduce the money you have for a deposit. If you pay off debts you should ensure you still have the funds (or save up again) to meet the lender’s deposit requirements. 

For a residential home, you usually need to have at least a 20% deposit for the best mortgage deal (plus money for fees like stamp duty), which can differ depending on how long your mortgage term is. And this is typically more if you wish to buy an investment property that you’ll rent out. So there is more to consider than just paying off the debt first.

How long after paying off debt can you apply for a mortgage?

Because you can still be approved for a mortgage with debt, there’s no time restriction on applying for a mortgage after paying off debt. But you might want to wait to ensure your credit report has been updated.

There could be an exception to the above, especially if you have recently used an insolvency solution like bankruptcy or a Debt Relief Order (DRO). 

Can you remortgage if you have debt?

Yes, it’s possible to remortgage from one mortgage to another if you have existing debts. 

Although you might not be able to access the best deals or release as much equity while remortgaging (if desired) when you have debts. 

Interestingly, some people remortgage and borrow additional funds on the new mortgage, and then use this money to pay off existing debts. It’s a clever tactic that can consolidate debts and save money on interest, known as remortgaging for debt consolidation

What stops you getting a remortgage?

You can be stopped from remortgaging due to:

  1. Too much existing debt
  2. A very bad credit score
  3. Negative home equity – this is when the value of your home has decreased, leaving the mortgage bigger than the property’s value
  4. Other preventive factors, such as high early repayment charges on the initial mortgage or failing to meet qualifying criteria

Do you have a credit check when remortgaging?

Yes, remortgaging is an application for new credit and therefore includes a hard search of your credit report and an analysis of your credit score. 

What should you not do before remortgaging?

If you plan on remortgaging soon, try not to spend erratically, apply for new credit or miss existing debt repayments. 

What is a bad credit mortgage?

A bad credit mortgage is a mortgage deal that is aimed at people with poor credit but wanting a mortgage. 

Bad credit mortgages are usually advertised by online mortgage providers. They may not have the most competitive interest rates, but you may be more likely to get approved for one of these if you have especially bad credit. 

It’s worth speaking with a good mortgage broker to work out if this is the right option for you. Some mortgage brokers are fee-free, so you won’t pay to learn the best option. You might even find a mortgage broker who specialises in helping people with poor credit.  

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Bad credit mortgage calculator

You can get an idea of how much you can borrow and the interest rate you’ll have to pay on a bad credit mortgage. Bad credit mortgage lenders usually have a bad credit mortgage calculator on their websites to access this information. 

But be aware, these calculators like others use a representative rate, which is just the interest rate that at least 51% of applicants were offered. You could be offered a much higher rate of interest. 

Need more help with mortgage debt or other debts?

Worried about debt? Get help dealing with your credit card debt, other debt and arrears on the MoneyNerd debt information guide. It’s worth consulting this guide before you start applying for a mortgage

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  • Affordable repayments
  • Reduce pressure from people you owe
  • Lower monthly repayments