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Can you get a mortgage with debt?

Many people who are in debt automatically assume they won’t be eligible for a mortgage. This isn’t always the case and you should still have a chance to take out a mortgage if you have debts. However, if your existing or previous debt has had a negative impact on your credit rating, then it can affect your mortgage application. This can be anything from making late payments to paying into a DMP (Debt Management Plan).

Luckily, there are mortgage lenders who are understanding of people who have a less than perfect credit score. Rather than just taking into consideration your credit history, they will look at your current financial situation to assess whether you can afford the monthly payments.

How to apply for a mortgage with debt

Getting a mortgage with a bad credit score won’t be as easy as having good credit. It’s likely that you won’t be eligible for the same mortgage deals, as interest rates will be higher for bad credit customers. But there are still options available to you as long as you can afford to make the repayments.

Here we have provided some tips for getting a mortgage if you have any outstanding debt:

Work out your affordability

The most important thing that you should consider is whether you can afford the mortgage. The size of your deposit will make a difference on how affordable your mortgage is. Lenders are also unlikely to accept you at all if you don’t have a sizeable deposit to put down. In addition, if you do have a bad credit history then it’s often a requirement that you put down an even larger amount. This is typically between 15-30% of the total value of the property.

You should also work out if you can afford the monthly payments. If you know that they will be a stretch for you then there’s no point in applying as a lender will also be able to see that.

Check your credit score

Before submitting your mortgage application it’s a good idea to check your credit report. You can do this through a number of credit reference agencies including Experian and Check My File. Any information will remain on your credit file for 6 years so if you have any loan defaults, have been made bankrupt or been in an IVA then a lender will be able to see this information.

Knowing your credit score will give you a better indication of what rates and types of finance you can apply for. There might also be things that you can do to improve your credit score before submitting your mortgage application.

Organise your finances

Showing that you have your finances under control now will help with your mortgage application. If you can show that you have settled your debts then you have a much better chance of being approved than if it is still outstanding. A debt problem that has been solved is far better than one that is still ongoing. Make sure that you always make your payments on time and if possible, set direct debits so you don’t risk missing any.

Demonstrating good financial management is also especially important for first time buyers who have never had a mortgage before. You might not have borrowed much in the past and need to show that you are a responsible person to lend to.

Consider a mortgage broker

You should be aware, however, that some lenders will still reject applications even if you have settled your debts. Using a mortgage broker that specialises in bad credit mortgages can help to increase your chances of being approved.

A man holding a phone as he checks his credit score

Check your credit score

You can check your credit file for free here with Noddle.

Checking your credit file will NOT affect your score

Many people avoid checking their credit report because they have been lead to believe it will have an impact on their overall score. In fact, you can check your own credit report as often as you like without it having an impact on your score. Although every check of your report will create a footprint on your file, only searches made by financial lenders will leave a mark on your file that other lenders will see.

Why do we check your credit score?

As responsible mortgage brokers, it’s our job at Clever Mortgages to recommend the right products to you. Having access to your credit file means we can carefully consider your lending options and discuss other options with you if they are more appropriate. We want to make sure that we place you with the right mortgage product and with the right lender for your situation. We also have options available for people with a poor credit history.

What does your credit score mean?

Your credit score shows lenders how trustworthy you have previously been at repaying your debts. This helps lenders make an informed decision about whether or not they should lend to you now. Checking your credit score can be daunting, especially if you’ve never checked it before. The advisers at Clever Mortgages will be more than happy to help you better understand your credit score and what type of loans you might be eligible for.

Refused a mortgage with a good credit score?

Every lender has their own lending criteria which will usually take into consideration more than just your credit score. Other factors such as borrowing against the property value, length of time in your current job or at your current address. If you know your credit score is low, then there are things you can do to improve your credit score before applying for a mortgage.
A man holding a phone with his credit score indicated on it

Check your credit score

You can check your credit file for free here with Noddle.

Checking your credit file will NOT affect your score

Many people avoid checking their credit report because they have been lead to believe it will have an impact on their overall score. In fact, you can check your own credit report as often as you like without it having an impact on your score. Although every check of your report will create a footprint on your file, only searches made by financial lenders will leave a mark on your file that other lenders will see.

Why do we check your credit score?

As responsible mortgage brokers, it’s our job at Clever Mortgages to recommend the right products to you. Having access to your credit file means we can carefully consider your lending options and discuss other options with you if they are more appropriate.

We want to make sure that we place you with the right mortgage product and with the right lender for your situation. We also have options available for people with a poor credit history.

What does your credit score mean?

Your credit score shows lenders how trustworthy you have previously been at repaying your debts. This helps lenders make an informed decision about whether or not they should lend to you now. Be aware though of the differences between no credit and bad credit.

Checking your credit score can be daunting, especially if you’ve never checked it before. The advisers at Clever Mortgages will be more than happy to help you better understand your credit score and what type of loans you might be eligible for.

Refused a mortgage with a good credit score?

Every lender has their own lending criteria which will usually take into consideration more than just your credit score. Other factors such as borrowing against the property value, length of time in your current job or at your current address.

If you know your credit score is low, then there are things you can do to improve your credit score before applying for a mortgage.

A man ticks a box next to five starts under the title "credit score"

Ways to improve your credit score

A poor credit history can complicate things when trying to get a mortgage. Many mortgage providers won’t lend to someone who has suffered from bad credit regardless of their situation now. If you’re confused about credit or you’ve been unsuccessful in getting a mortgage then you should work to improve your credit score.

Unfortunately, there’s no quick fix for your bad credit score. Your credit history has been built up over time and the things that have had the biggest impact will be different for everyone. You will need to demonstrate over time that you can continually make payments in full and on time. Any negative information that might be on your credit file such as CCJs, an IVA, late payments or bankruptcy will exist on your credit file for 6 years since the date they were recorded. You might need to wait until these have disappeared from your file if they are preventing you from getting approved.

Luckily, there are some things you can start doing right away to help improve your credit score:

1.     Check your credit report

The first step to improving your credit is to know exactly what your situation is. You should get into the habit of regularly checking your credit score. This is so you can make sure the information about you is accurate and up to date. You will also be able to see how your credit score improves over time as you start making more positive financial decisions. Checking your credit score is free through a credit reference agency including Experian, Equifax or Clear Score.

2.     Plan to pay off your existing debt

Try and pay off all your existing debt as soon as possible. If you can’t do this yet you should create a plan so you know when you’ll have this paid off. If you use any savings to help pay off debts then make sure you still have some money aside for emergencies. This will help you to avoid getting into any debt again. Paying off your current debt will help to show lenders that you’re working to rectify your current financial situation.

3.     Be cautious when using credit cards

Cancelling any credit cards that you no longer use can help to show that you’re intending to borrow less. It can also stop the temptation to use them at any point. On the other hand, if you don’t have a credit card, taking one out and managing it properly can help to improve your credit score. You should only do this if you know you can afford to make repayments on time and in full.

4.     Have some responsible credit

If a credit card is not appropriate for you, or if you can’t get approval for one, then taking out a small form of credit might be a better idea. This could be a mobile phone contract or store card. Providing you manage these well it can show lenders that you can pay bills responsibly, helping you to show that you can be trusted with a bigger loan.

5.     Get on the electoral roll

Another way you can help to improve your credit is by making sure you’re on the electoral roll. If you’re not then you should register as soon as possible. Although it’s not compulsory to vote, having your details on the electoral roll allows lenders to easily verify your identity and address. This can have a positive impact on your credit score.

6.     Consider bad credit finance

If you can afford to pay higher interest rates and potentially put down a bigger deposit, then bad credit finance options such as a bad credit mortgage might be for you. These are designed for anyone who has a low credit rating and unable to get competitive rates for finance. The benefit of paying higher mortgage rates, for now, is that providing you pay on time in and full, it can demonstrate that you are someone who can be trusted to lend to. If you can continue to prove this you will increase your chances at being eligible for more competitive interest rates in the future.