People often think that a mortgage lender will look at how good your credit score is. That isn’t right – sometimes you can get a mortgage with a not good credit score or you may be rejected with a great credit score.
Three key factors in getting a mortgage are:
- your deposit
- the affordability calculation – this is affected by current debts that you are repaying;
- your credit history – this is affected by current and previous problems in repaying debts.
So although you can get a mortgage with debts, debts do affect whether you will be offered a mortgage and how much you will be able to borrow.
Contents
1) How big is your deposit?
A bank will feel much happier about any minor credit history problems you have had in the past if you have a good deposit.
With a low deposit, less than 10%, everything else has to be looking great if you want to get a good mortgage deal.
So should you borrow to get a larger deposit? No!
Although having a larger deposit may make it look as though you can get one of the best buys on offer, in practice the extra borrowing is likely to mean that you will fail the affordability calculations so you won’t get a mortgage at all. Not a good idea.
2) Mortgage affordability
Affordability is a major issue in 2023
Affordability problems are much more common now because of the higher mortgage rates. A 200k mortgage may have been easily affordable at 2% interest but be too much at over 5%.
Even if you know that a mortgage will cost the same or less than your rent which you have paid without problems for years, you may still fail a lender’s affordability checks. You can improve the affordability calculations by looking at a longer mortgage term. This is becoming very common in 2023, but do not underestimate the problems with very long mortgages.
The mortgage affordability calculation will look into your outgoings in detail. When you apply for a mortgage you will be asked about debts, childcare costs, commuting costs and other expenses. The lender will want evidence about these costs, usually asking for three or six months of bank statements.
Your debts are an important part of this: credit card balances, loans, car finance payments etc.
A mortgage affordability calculator
Each lender has its own rules and these can differ a lot. One of the big advantages of using a broker is that they will have a good idea if you are likely to pass Bank A’s affordability calculations or if you would be better to apply to Bank B.
If you are thinking ahead to a future mortgage, is a good idea to get some feel now for what you may be able to borrow, without having to talk to a broker.
Most mortgage lenders have a “how much might we lend you” calculator” on their website. But most are very basic, just asking about your income and deposit.
But this Santander calculator has a few more details, including about your debts.
How your debts affect affordability
Debts that you are currently paying affect the affordability calculations directly.
Look at how that Santander calculation changes how large a mortgage you could be offered in this simple situation – one applicant, £45k income, wants to buy a 200k house, has a 20k deposit:
- with no current debts, the calculator suggests a possible mortgage of 202k;
- with a 5k credit card balance, that drops to 184k
- with a £200 a month car finance payment, it drops to 178k
- with a 5k credit card balance and a £200 a month car finance payment, it drops to 160k
- with a 15k credit card balance and no loans or car finance, it drops to 147k.
So quite low loan repayments and credit card balances can have a significant effect on the amount you can borrow.
It doesn’t matter whether credit cards are on 0% deals, the balance is still treated in the same way. Because the lender has no idea whether you will be able to refinance that debt when the deal ends.
3) Your credit history
Why you should do three checks
You must check your details with all three credit reference agencies: Experian, Equifax and TransUnion.
This applies even if:
- you have never missed a payment in your life; or
- you look at a credit report every month and it’s great.
There could be something on a credit reference agency you haven’t looked at that is wrong – perhaps an incorrect link to someone else’s account, or a wrong previous address, or a debt you are unaware of from when you moved house.
An error on your file can take a long while to get corrected, so check now!
Finding an unexpected problem when you are in the middle of buying a house can often mean your purchase falling through. This really does happen to hundreds of people every year, see A credit rating dispute could cost me getting a mortgage where an error by a bank took six months to sort out – and was only finally resolved when a national newspaper got involved.
If you have a perfect record with all three CRAs, great! Provided that you don’t have old debts that you are still repaying that no longer show on your credit, see below.
Different sorts of current and previous problems
With a less-than-perfect score, how serious is your credit problem? Mortgage lenders don’t use the score that you see – they are interested in the underlying problems.
Mortgage lenders usually rank difficulties in roughly the following order:
- late payment
- missed payment,
- AP/debt management
- default,
- CCJ,
- insolvency (IVA, DRO, bankruptcy)
Most mortgage lenders also regard payday loans as a major problem unless they have been repaid more than 2 years ago. if it has been recent. This applies even if the payday loans were repaid on time, see Payday loans make it harder to get a mortgage.
And how old are the problems?
It isn’t just the type of problem that is important, it also matters how long ago it happened and when you sorted it out.
A debt problem that you have “solved” is much better than one that is still ongoing… so if you have defaults or CCJs on your credit record you have to settle these debts.
A settled default shows you had problems in the past. But any default which is still outstanding shows you still have debt problems – not good for your mortgage application.
Some lenders will reject any applications with defaults even if they are settled. But some high street lenders don’t mind past problems:
- if your defaults were more than three years ago
- and they have been repaid a while ago. One year used to be common, now many lenders want to see two years free of problems.
So what the default date is on your credit record is really important as mortgage lenders care more about recent problems.
Also a defaulted debt disappears from your credit record six years after the default date. So if you have several old defaulted debts from 2018 which you have settled that will be dropping off your record in September 2024, think about delaying any mortgage application until after they have gone. This will give you the widest choice of mortgages including the best deals.
Problems that no longer show on your credit record
Once a defaulted debt has dropped off your credit record, it will still impact a mortgage application if you are still paying it, The lender will be able to see that from your bank statements.
If you have been in a DMP for 8 years and all the debts have defaulted, your credit score may be great. But a lender will see the DMP payments. Your score doesn’t matter, it is the debt problems that do.
Once you have settled old debts no longer on your credit record, after 6 months you can make a mortgage application and the lender won’t see the old problems. (Of course you need to avoid applying for a mortgage to a lender that is part of the same banking group. Or they may be able to see your previous problems from their internal records. )
What is your overall picture like?
How good is your overall picture: deposit – affordability – current debts – credit history? If it’s not looking good, then you are going to have to spend some time, possibly even years, improving it.
Read up about Snowballing, this is the fastest way to clear debt. Time is a great healer of credit records, adding a year of perfect credit ticks every month, combined with your credit card and overdraft balances falling can make a big difference.
Also read How to improve your credit record for a mortgage. And if the default date for one of your debts looks a lot too recent, you should try to get this corrected, see What should the default date for a debt be?
10 tips for a trouble-free mortgage application in the next year
Once you know when you want the mortgage, you must do everything possible to avoid new problems appearing. So:
- don’t make any credit applications in the few months before asking for a mortgage
- no payday loans in the last two years before a mortgage application.
- don’t use Klarna or other Buy now, pay later lenders in the 6 months before a mortgage application.
- if you have any 0% deals ending in the next few months, pay down that balance as fast as possible as you don’t want to have to refinance just before a mortgage application.
- if you cancel any direct debit, double-check your account is clear first. Be especially careful with mobile contracts – a common cause of credit record problems if the last bill isn’t fully paid.
- make sure credit card balances are reducing and that you are paying more than the minimums. The mortgage lender can see not just your current balance but also your borrowing and repayment history. Ideally don’t spend on the cards at all if you are trying to reduce a balance.
- reduce your overdraft usage.
- keep “discretionary expenses” well under control. When someone says their recent bank statements aren’t normal because they went on a good holiday in November and then it was Christmas, the lender is likely to think that these things happen every year!
- don’t change jobs. This may not be under your control but if you have any choice, this is not the time to switch employers.
- don’t change your name. It won’t stop you getting a mortgage but it can cause temporary problems on credit records so why take the risk?
Getting that mortgage – who and how to apply to
Unless your credit record is great, it’s good to go through a broker who should be able to advise which lenders will be happy with your credit record.
Every lender is different. Not only do they use their own assessment calculations, but some are more flexible than others. Some high street lenders adopt a Computer says No approach to low and average deposit loans if you have any recent credit record problems at all. If you have a very large deposit, other lenders may be more willing to accept an application with recent problems.
Contacting banks individually can waste a lot of your time and any rejected mortgage application will leave a ‘footprint’ on your credit record. So if any of the following apply, consider going to a mortgage broker instead:
- you have a low deposit;
- you need a large loan in relation to your income;
- your credit history isn’t spotless; or
- there is anything unusual about your situation.
Money Helper has advice here on finding a broker Where to go for the best mortgage deal.
Liam Attrill says
The estate agent is asking how much my debt relief order was for. I’m reluctant to give the information across, but is there any way they can find this out?
Not the debt relief order itself, just how much.
Thank you
Sara (Debt Camel) says
why are they asking this? how long ago was the DRO? do you have a mortgage arrangement in principle organised?
Juan G says
Than you Sarah for this amazing guide. I was on a DMP years ago but everything has been paid and I no longer have any bad marks on any of the agencies. However, me and my partner pay for most things (except utility bills) using credit cards in order to collect points for travelling, we always pay the full amount every month. Would this sort of behaviour affect a mortgage application? We are nowhere near having enough for a deposit but I would like to know for the future. Many thanks in advance.
Sara (Debt Camel) says
How much of your credit limit does your spending get up to in a month?
Juan G says
About 10%, never more than 20%.
Sara (Debt Camel) says
Well that shouldn’t affect your credit score. My personal preference is to play is very safe with a mortgage application and reduce that for the 6 months before an application so what you are spending on petrol, groceries etc actually shows on your bank statements.
Juan G says
Great, many thanks for your advice Sara.
ROY says
Hey Sara
I had a deafult and ccj for a bank loan in 2015 it’s off my credit report now I’m still paying the debt £10 pw I never here from the loan company I have a clean creditfile will the £10 aweek stop me getting a mortgage?
Sara (Debt Camel) says
It will stop you getting one at an OK rate. How large is the remaining debt?
Red says
Great and concise guide Sara. Thank you
Laura says
Hi there, I’m looking to move next year and regularly use klarna or clear pay because I liked the idea of spreading the cost not because i didn’t have the money. But now I’ve seen a lot about how people are being refused mortgages because of it. I don’t currently owe anything and I don’t plan on using it again, I’ve closed any accounts but has the damage already been done?
Thank you
Laura
Sara (Debt Camel) says
I don’t think this will be a problem if your deposit and affordability are ok
Dale says
Hi Sara,
I’ve spent pretty much my whole evening on this website and it’s an absolute godsend.
I’m looking at getting a mortgage within the next 3/4 months. My credit file on other agencies was good until I checked TransUnion and my score was 649. I’d noticed on there as well an old payday loan I had in 2013 was settled in 2020 through an arrangement to pay.
However as far as I was aware this was long gone and was surprised to see it on there as recent as 2020. This arrangement to pay is on my file dating back from 2013-2020 and is marked at settled and cleared. I’m just after a bit of clarification as to what to do and will this stop me getting a mortgage or mean I won’t be able to get a mortgage at a good rate.
I have 3 years now of a totally clean credit record. All payments on time etc. I’m just panicking a bit now and wanted to turn to yourself for some help. Any help would be greatly appreciated.
Thanks Dale
Sara (Debt Camel) says
Who was the payday lender?
Dale says
Payday express. I’m currently in the process of trying to get it Supressed.
Sara (Debt Camel) says
That should work. Your argument is that they should have added a default date back in 2013 or 2014 because of the number of months in arrears you were.
Dale says
The default date was added in 2013 I believe. Then from onwards it’s listed as an arrangement to pay that was cleared in 2020.
What kind of impact will this have on a mortgage application?
Thanks for your responses
Sara (Debt Camel) says
if they gave a default date in 2014 and then removed that to list a payment arrangement, that should NOT have happened. If the default date in 2013 had stayed on there, the debt would have been removed from your credit record in 2019. This is the reason to give for asking it to be supressed – because you can no longer ask the lender to correct their error as they have been liquidated.
Dale says
I shall use this advice when speaking to TransUnion who the disputes with.
With this still on my record at the moment will it be difficult to get a mortgage at a decent rate? Or will it even make it impossible?
Having just checked my record it was stated as an arrangement to pay in 2018. Was then paid off in full in 2020. The original payday loan was taken out in 2013.
Sara (Debt Camel) says
Having just checked my record it was stated as an arrangement to pay in 2018.
So what happened from 2013 to 2018? missed payments? arrears? no reporting?
With this still on my record at the moment will it be difficult to get a mortgage at a decent rate? Or will it even make it impossible?
It should be possible – go through a broker, do not apply direct. But if you can get it removed there may be a wider choice of lenders.
Simon says
Hi Sara, me and my girlfriend are considering moving house next year, we currently live in a property that we both contributed to buy but it is in her name due to my past financial issues, when we sell and pay back what is left on our current mortgage we will have 40-50k as a deposit for a new house. I should be totally out of debt by July this year, but I am wondering if lenders will look back at my credit file and see that I have had a lot of loans in the past and not accept me as a joint applicant. Household income is about 90k with her being self employed and me full time employed. I do have 3 defaults from 2020 on my file. Any answers to the above you could provide would be much appreciated
Sara (Debt Camel) says
when were the defaults from 2020 cleared?
Simon says
So one of them was settled in 2021. The other 2 were accounts where I made a settlement offer to the creditors which they accepted, would it make things better if I paid the balance between what was originally owed and the accepted settlements?
Sara (Debt Camel) says
what date was the settlement?
Simon says
The settlement was 5th March 2020. I offered both lenders about 80% of the full balance as full settlement and they accepted and closed the accounts they were against but they still show as defaulted (which I guess they will for 6 years from the date the default was registered). If I have no debt and with a 40-50k deposit on a joint mortgage by March 2025, are these likely to cause me to be rejected?
Sara (Debt Camel) says
ok so 2 debts were settled in 2020. And 1 in 2021.
When you say “you will be totally out of debt byt July this year” are there any other problems showing on your credit record apart from these 3 old defaulted and settled debts?
Simon says
I currently have a personal loan with Lendable, an overdraft and a credit card (all which I can clear by July). All payments on the above are up to date and utilisation on the credit card is only about 20%
Sara (Debt Camel) says
in that case I would expect you will be able to get a mortgage at an OK rate from a high street lender in 2025. Go through a broker though, don’t just apply to a lender. And tell the broker the details of the debts that you have trouble with in the past as you dont want to apply for a mortgage to any of them, or any other part of the same banking group.
Liam Attrill says
Hi Sara,
My wife and I recently had that ready for orders. On my side I have provisionally set up a token payment plan with step change for two mobile phone contracts. One is around one and a half thousand pound outstanding balance and the other about £3000 outstanding balance.
We would be looking to purchase a shed ownership property next year After around a year of the token payment plan once funds free up a bit more but do you know how much this would affect me in Being accepted for a bad credit Mortgage? my debt relief order ended in December 2021.
I plan on making a token payment plan of £1 to each debt equaling £2 each month for one year at which point I could then refer back to the previous payments. Monthly, this comes to £228.
There is the option of putting the shed ownership in my wife’s name, but The eligibility criteria make it harder due to not being involved For ability purposes, however, it is doable.
The other option could potentially be default on both of those agreements and then come to our agreement where I am paying much less than £228 a month.
Any helpful guidance would be greatly appreciated.
Sara (Debt Camel) says
I think you need to talk to a mortgage broker that specialises in bad credit. A DRO still on your credit record isn’t good. And now recent defaults on 2 other debts. Making token payments in order to save a house deposit is not a sensible way forward.
Liam Attrill says
Sorry, my wife will have some money coming to her next year so isn’t to save money now, the mortgage deposit will already be covered. It’s just this £228 is taking up all disposable income at the moment. So just wanted to know how badly it would affect me I guess.
Sara (Debt Camel) says
Badly. Especially with an old DRO still showing on your credit record.
Talk to a mortgage broker about your options.
Neil says
Hi Sara,
I have 1 CCJ which drops off in Jan. 3 credit cards, 1 with zero balance and £1500 limit. 1 with £1000 balance and limit of £3500 and one with £3500 balance and limit of £9500. I have no missed payments or other negatives on my report.
My major concern is that in last 2 years I have 4 short term loans showing and regular payments to Klarna. All paid in full on time. Not sure if the loans would be classed as payday loans, they were over 3 months but I paid all off early. 2 with loans to go and 2 show on bank account as stagemount Ltd. How concerned should I be by the loans and Klarna please and how much will my score go up when the CCJ comes off in Jan thanks.
Neil
Sara (Debt Camel) says
I would expect the Stagemount (Quidmarket) loans to show as payday loans but not Loans2Go – you can check by getting a statutory report and seeing if there is a payday loan flag against them.
You could try making an affordability complaint about the loans – ask for a refund of the interest and for the loans to be deleted from your credit record. Sometimes a lender will offer some goodwill gesture including deleting the loans.
You may as well try that with Loans2Go as well – very expensive loans, much worse than payday loans.
The CCj going – probably 100-150 points. But mortgage lenders dont care about your credit score, only the problems that show.
Neil says
Thanks for the reply. How do I make an affordability complaint?
Neil
Sara (Debt Camel) says
sorry that reply was not meant for you.
Here is the template for payday loan complaints https://debtcamel.co.uk/payday-loan-refunds/.
And a separate on for the Loans2Go https://debtcamel.co.uk/worst-loan-in-britain/
Neil Liver says
Thanks again. Emails sent. If I manage to get the loans removed from my credit report, will the fact that they are still on my bank statements be an issue. How far back will a lender check my bank statements. They will be around 8 months old. The same as with Klarna payments. No payments missed for 10 years but I’m so worried no having the loans and Klarna visable on credit file and bank statements.
Sara (Debt Camel) says
Klarna isnt a problem on your credit record. You should stop using it from now on though.
Mortgage lenders typically go back 3-6 months.
Neil says
Brilliant. Your advice has been invaluable and is much appreciated. Hopefully I can get QuidMarket(stagemount) removed from my records then I will be all set.
Thanks so much
Neil says
Hi Sara,
Just wanted to thank you again. Quidmarket have agreed as a gesture of goodwill to remove the loans from my credit file. By Jan I will be in a position to apply for a mortgage with nothing negative on my file. So glad I found this website and followed your advice.
Neil
Rachel says
Hi Sara
Me and my partner are looking to get a first time buyers mortgage. We are current paying off any defaulted debts and ccj’s which is taking up most of our access income but bills and rent are being paid. Most of my defaults for low sums but some are 1.5k plus like I have a combined debt of about 3k to British Gas through being charged monstrous amounts during Covid -19 my ccj is around 1.7k and my partners has 2 for £1k and 1.2k we are trying hard to clear these can you advise if doing this is a positive outlook to lenders or we just going to be viewed the same despite us paying it. It’s so confusing a lot of conflicting information out there and we just want to do the right thing too. I know it’s best we look at getting a broker but bad credit ones who can you trust? Contacted a few but never get back to us so feel we are undeserving of a mortgage 😔
Sara (Debt Camel) says
So at the moment you don’t have any deposit saved up?
What dates were the CCJs?
What other defaults do you have apart from the CCJs?
Rachel says
Hi Sara,
Have a few defaults 2 with utilities which I’m paying as I run up a British Gas bill for about 3k during Covid couldn’t pay loads was visiting family and a prepayment meter was put in I had to agree over camera as they were going to enter regardless due to not being in the country they wouldn’t come back had a warrant.
3 defaulted jd Williams accounts which I have put in an affordability complaint in for via email as they gave me 3 account although defaulted on previous ones and had questionable credit file at the time of the applications.
A Klarna for £69 about 18 months old 3 account for Three mobile about 2 years ago when defaulted totalling about £600 as had 3 mobile accounts with them. Studio account for £250 about 2 years ago defaulted.
Rachel says
Hi Sara,
My ccj is one amount submitted by Lowell for a total of £1719 filed June 2022 £429 capital one debt and £1375 power from previous address. The address I had to leave as I was evicted due to unpaid rent as I was struggling.
My partners ccjs were registered June 2023 and September 2023 one for a Vodafone account with Lowell the other is with Mortimer Clarke they are being paid off and should be done by feb 2025 just finished paying a capital one for around £300 with Lowell and an npower account also with Lowell
We are paying this off one by one we are also looking at a deposit of 95k through inheritance. We earn £57k between us I am a civil servant for 8 years my partner been in his jobs 3 years I also get disability benefits for me and my son 11.7k per year.