Last reviewed on 16th October 2023 by Martin Alexander (Mortgage Advisor)
If you want a mortgage but have credit card debt, you’re not alone. In fact, the average credit card debt in July 2023 averaged £2,376 per household in the UK. Many lenders also know how widespread debt is, so it shouldn’t stop you from getting a mortgage.
In this guide, we’ll explain what you can do to improve your application before you apply.
Can I get a mortgage with credit card debt?
Yes, you can get a mortgage with credit card debt. Although, you may find better rates and more lenders to apply with being debt-free.
Some lenders won’t consider your credit card debt at all. However, most lenders will and having large amounts of debt can affect the amount you can borrow.
How much credit card debt is too much for a mortgage?
There isn’t a value of debt that’s considered too much for a mortgage. This is because lenders will assess your debt in relation to several factors, such as:
- The amount you want to borrow – Lenders typically lend between 3 and 5 times your salary. However, having a lot of debt on your credit card can bring this amount down, especially if you want to borrow a maximum amount.
- Your income – The more you earn, the more debt you can have on your credit card. This is because your debt will have little impact on your application. In comparison, a smaller income with high levels of credit card debt can be a concern for lenders.
- Credit rating – When you apply for a mortgage, you’ll undergo a credit check. Having a good credit rating shows you repay your debt on time, so it can support your application and give lenders confidence. If you’ve repeatedly made late payments, getting a mortgage can become more complex, especially with high debt levels.
- Debt-to-income ratio (DTI) – Some lenders assess an applicant’s DTI as part of their criteria. Your DTI shows your monthly income compared to what you owe. Lenders can then determine how much you pay each month towards your debt and how much income you have left over.
- The lender you’ve applied with – Each lender has unique criteria. For instance, some lenders won’t assess your DTI, whereas others will. The lenders that don’t consider DTI will use a percentage of your credit card debt in their affordability assessment, which we’ll explain further in this guide.
As these factors will vary for each applicant, the maximum amount of debt you can will be different. For instance, one applicant may have £3000 worth of debt and be approved. In contrast, another applicant may have a £500 debt and get declined.
How is credit card debt calculated for a mortgage?
Lenders use one of two ways to calculate your debt for a mortgage. Some lenders may use both methods to determine your affordability.
- Debt-to-income ratio
Debt-to-income ratio (DTI)
As we’ve established, lenders may use your debt-to-income ratio to calculate your mortgage.
You can calculate this by dividing your monthly debt payments by your total monthly income and multiplying the result by 100. This will give you a percentage known as your debt-to-income ratio. For instance, if your pre-tax income is £2,000 a month and you have a monthly debt of £500, your DTI would be 25%.
Most lenders will require your DTI to be below 50%. However, some may have a lower maximum allowance of between 30%-40%. A low DTI percentage will give you more choices of lenders. A higher percentage can leave you restricted with the lenders you can approach.
Not all lenders will use DTI to calculate a mortgage. Some lenders will calculate your debt by deducting it from your salary using a fixed percentage. Doing so allows lenders to calculate whether a mortgage is affordable.
Some lenders use a percentage, typically between 3%, to calculate how your debt can affect your mortgage. For instance, if you owe £10,000 on your credit card, a lender will assume you pay 3% (£300) of your monthly debt. They’ll then factor this into your assessment to determine how much you can borrow.
Lenders each use different percentages, which range between 2%-5%.
Should I clear my credit card debt before applying for a mortgage?
It’s only sometimes necessary to clear your credit card debt before applying for a mortgage. However, paying your debt can strengthen your application, and you may be able to borrow more.
Clearing your credit card debt can allow you to:
- Borrow more
- Have more lender options
- Qualify for better rates
- Save money
Although it may cost you more initially to clear your credit card debt, you’ll pay less interest on the debt you have. You can also improve your credit score before applying. The savings you can make on your mortgage could well be worth it. However, speak to an advisor if your debt is significant enough to affect your mortgage.
Which mortgage lenders accept credit card debt?
- Pepper – Do not use a debt-to-income ratio, but will use 3% of your debt against your affordability.
- Norton – Use a DTI ratio of 50% and will use 2% of your debt in your assessment.
- Marsden – Has no set debt-to-income ratio but will deduct 3% of your debt from your monthly income.
- Nationwide – Will decline applicants with a DTI ratio higher than 50% and use 5% of your debt to calculate your affordability.
- Precise – Don’t use a DTI ratio, but will use 3% of your debt in your assessment instead.
There are hundreds of lenders to compare, but this gives you an idea of the criteria surrounding credit card debt. It’s also important to only apply with a lender once an advisor confirms your eligibility. Debt is just one of the many factors assessed.
Tips from our experts
In my experience, credit card debt is rarely an issue unless your debt has spiralled out of control. Lenders like to see applicants with healthy finances. If you have debt that’s under control, a mortgage should be straightforward.
If your credit card debt is slowly increasing, reduce as much debt as possible before applying. Doing this will increase your chances of a better deal and make your finances more manageable.
You can also speak to our advisors for a more tailored answer. We can assess your entire application while finding a suitable lender.
About the author
Martin is a senior mortgage advisor and has held a CeMAP qualification for over 15 years while also completing an MBA in Global Banking & Finance.