Having debts – whether on credit cards or loans – will affect your mortgage application.
They may not necessarily stop you from getting a mortgage, but you probably won’t be able to borrow as much as you were hoping.
If it’s a joint mortgage you’re applying for, you may face an obstacle if your partner has existing debts – especially if they’re quite high.
If you’re married, engaged or in a civil partnership with your other half, this means you are financially associated with each other. Both you and your partner’s names will be on your credit histories, so any lenders you apply to will be able to see both your payment histories and debts.
Even if you’re not in a legal partnership, your finances will be tied if you have ever taken out a joint credit card, loan or mortgage.
When you apply for a mortgage together, any debts you or your partner has will affect the lender’s decision. Having large chunks of your income going towards paying off another lender means there is less room in your budget for mortgage repayments. This is why, although you may not be turned down outright, you may not be able to borrow as much as you hoped.
In this situation, it’s best to turn your attention to clearing as much of these debts as possible before applying.
Focus on clearing the debt first
Ideally, if you’re in a rush to get a home of your own, you may wish to consider using some of your own savings to pay off as much of your partner’s debts as possible. It’s important to think carefully before doing this though, as it is your money and you have worked hard to save it. It’s not much fun thinking about a scenario where you separate, but you would be considerably worse off if you cleared your partner’s debts with your savings and then your relationship ended. You’ll also need to be sure that you’re still left with enough to use as a deposit on your new home.
If you’re happy in your relationship and confident of your choice, you may want to come to an agreement with your partner instead. For example, you could both agree to make your mortgage repayments together, but your partner sets aside some cash every month into a savings account in your name. This works as a backup pot of cash for you if you do split, but doubles up as a joint pot of money for you both to enjoy in the future.
However, you may not have savings to put towards helping your partner out, and you will instead have to tackle these debts in a different way. You could cut your spending elsewhere, and put the extra money you save towards paying off the debts. This has an extra bonus of putting you in good stead when you do come to apply for a mortgage, as your lender will want to see that your spending is under control.
Consider taking it out in your own name
So long as you’re not married or in a civil partnership, it’s possible to take the mortgage out in just your name. If your partner’s debts are not attached to you in any way, they shouldn’t influence your mortgage lender’s decision.
But it’s worth bearing in mind that you will be solely responsible for your mortgage. Even if your partner is putting their income towards it too, you will be the one legally held responsible for making the payments.
You should always agree a plan with your partner for what will happen to the property if you split up. If the mortgage is in your name and your relationship breaks down, you could be in a position that means you have to pay your mortgage on your own. And if your partner has been making payments towards it, they may want you to remortgage or sell the property so they can get their share of the equity. It won’t be nice, but by talking about what you will do with the property if you do break up, you could make the situation a lot easier to manage if the worst does happen.
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Intelligent Lending Ltd (Credit Broker). Capital One is the exclusive lender.