How does credit card debt affect mortgages

StreetHawk

We are looking at our finances with a view to re-mortgaging next year. Can anyone tell me how the lenders generally view credit card debt?


Is it just a case of reducing the amount they will lend or do they consider too much as a reason to decline, or maybe it's a bit of both?


A few figures -


House value £280k
Current mortgage £125k
Looking to remortgage for £150k
Reason for remortgage is home improvements (bought the house last year needing a lot of work)
Joint earnings just under £60k
No adverse credit
Both of us have a couple of credit cards on 0% interest
Amount owed on cards - £9k in total (4 cards)
No card has over 50% of it's credit used
No other debt or loans apart from the mortgage of course


If need be i'll sell my car (owned outright) which will give me enough to repay the £9k and get a cheap runabout but in all honestly I spent ages looking for it and I really don't want to sell it if I don't absolutely have to!


By the time we apply to re-mortgage the cards should be reduced to about £6k. So basically my question is, with a debt of £6k on credit cards will any lender turn us down?


Thanks for any advice

Thrugelmir

Debt is debt. The obvious impacts are on affordability and the likelihood that your finances are potentially open to financial distress. Lenders will score you themselves based on your previous 72 months history. So will detect trends, such as credit usage, minimum payments only, balance transfer rollovers, etc.

The biggest impact may well be on what interest rate you are offered.

What's the release of equity for?

StreetHawk

The reason for releasing the equity is mentioned above, the house needs some improvements/repairs.

So would you say a £6k debt when applying for a mortgage could mean we don't get the advertised rate ?

kingstreet

Very heavy unsecured debt, will see a case declined by some lenders.

Card debt will see 5% of the balance used to reduce the applicant's borrowing power.

On the high street, a lender will lend to you, or it won't. You don't find rates for one borrower versus higher rates for another at the same loan to value.

StreetHawk

Thanks, so in your experience have applicants been declined a mortgage due to credit card debt even though everything else is in order and the LTV is relatively low?

Thrugelmir

StreetHawk wrote: »

The reason for releasing the equity is mentioned above, the house needs some improvements/repairs.

The lender is more likely to think that you will consolidate existing debt and fritter the rest away. Replacing existing debt with yet more debt will be a concern for lenders. Nothing personal, it's just the way they will profile you during the application process.

StreetHawk

Thrugelmir wrote: »

The lender is more likely to think that you will consolidate existing debt and fritter the rest away. Replacing existing debt with yet more debt will be a concern for lenders. Nothing personal, it's just the way they will profile you during the application process.

Do they really think this when people remortgage to release some equity? Will we need to provide some kind of proof that we intend to have some work done?

I had no idea, just assumed the lender would do all the checks, if you meet the criteria then they will lend the money.

The outstanding debt on the cards will be about £6k by the time we apply and we want to release an extra £25k by remortgaging. We weren't intending to repay the cards as they are on long 0% deals..

StreetHawk

Would anybody else in the know be able to comment on this?

Basically the question is, is it likely a credit card debt of approx £6k will stop us getting a mortgage with any lender (assuming everything else is in order) or will the lender just reduce the amount they will lend us ?

Thanks all..

kingstreet

No, it will not normally prevent you getting a mortgage.

Yes, it will reduce the amount you can borrow.

StreetHawk

kingstreet wrote: »

No, it will not normally prevent you getting a mortgage.

Yes, it will reduce the amount you can borrow.

Thanks for answering, much appreciated!