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    • lifebegins
    • By lifebegins 29th Nov 17, 9:18 AM
    • 134Posts
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    lifebegins
    Credit card or loan debt- which is "worse" for mortgage application?
    • #1
    • 29th Nov 17, 9:18 AM
    Credit card or loan debt- which is "worse" for mortgage application? 29th Nov 17 at 9:18 AM
    If applying for a mortgage with existing debts in the form of both a loan and outstanding credit card debt, which type of debt is assessed less favourably by mortgage companies?

    i.e. if have £24 000 unsecured debt and £12000 available in savings to pay it down before applying for a mortgage, which would be most sensible as far as chances of acceptance and affordability calculations go, or is there no difference how it is viewed?

    Would it be better to pay off the credit cards and keep the £12K loan?
    Better to pay off the loan early and keep the £12K credit cards?
    Or split the difference and have a lower balance of £6K for each?

    Many thanks for your advice.
Page 1
    • kingstreet
    • By kingstreet 29th Nov 17, 9:45 AM
    • 32,405 Posts
    • 17,398 Thanks
    kingstreet
    • #2
    • 29th Nov 17, 9:45 AM
    • #2
    • 29th Nov 17, 9:45 AM
    It will depend on the monthly loan payment and how your chosen lender 'taxes' card debt.

    Some use 3% of balance, others 5%.

    Enter the data in your chosen lender's affordability calculator and gauge the impact.
    I am a mortgage broker. You should note that this site doesn't check my status as a Mortgage Adviser, so you need to take my word for it. This signature is here as I follow MSE's Mortgage Adviser Code of Conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice. Please do not send PMs asking for one-to-one-advice, or representation.
    • lifebegins
    • By lifebegins 29th Nov 17, 9:57 AM
    • 134 Posts
    • 144 Thanks
    lifebegins
    • #3
    • 29th Nov 17, 9:57 AM
    • #3
    • 29th Nov 17, 9:57 AM
    Thanks, I'll plug in some numbers.
    Additionally, would there be any impact, beyond straightforward affordability calculations, on likelihood of acceptance according the type of debt?

    e.g. could lenders take a less favourable of people with high levels of credit card debt, perhaps being concerned that they may be less financially responsible than those with equivalent levels of loan debt or is it all determined pretty objectively by the actual size of the debt?

    Thanks again.
    • ACG
    • By ACG 29th Nov 17, 10:14 AM
    • 15,916 Posts
    • 8,155 Thanks
    ACG
    • #4
    • 29th Nov 17, 10:14 AM
    • #4
    • 29th Nov 17, 10:14 AM
    There are a few things to be aware of with debt:
    - Some lenders have Debt to Income calculations in the background, this might not get picked up on the affordability calculator so you will need to check their criteria. As a general rule of thumb, if your income is around 30-50% plus of your annual income, some lenders will automatically decline you.

    - Some lenders would prefer to see you using up to say 50% of your available credit rather than 90%. Others on the flip side would rather see you with less available credit. Although this point is less of an issue than the above as it is reflected in the scoring of your application rather than an outright decline.

    - I doubt lenders will be too interest in where the debt is. It is more the fact you have it and does it fit criteria, pass affordability and will it likely get past the credit scoring.

    Personally, I would say with that level of debt it probably is not a bad idea to speak to a broker. Debt in itself is not a problem, it is more a case of avoiding the lenders who are going to be a little fussier about it.
    I am a Mortgage Adviser
    You should note that this site doesn't check my status as a mortgage adviser, so you need to take my word for it. This signature is here as I follow MSE's Mortgage Adviser Code of Conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice.
    • lifebegins
    • By lifebegins 29th Nov 17, 10:41 AM
    • 134 Posts
    • 144 Thanks
    lifebegins
    • #5
    • 29th Nov 17, 10:41 AM
    • #5
    • 29th Nov 17, 10:41 AM
    Many thanks- that is all really useful info.
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