While debt can affect your mortgage application, lenders also consider other factors too. But you probably won’t be able to borrow as much as you were hoping to.
Can you get a mortgage with debt?
Yes, you may be able to get approved for a mortgage with debt, but there are no guarantees. Some lenders will be put off by it, but there are some providers who specialise in bad credit mortgages. So, you may be able to get a joint mortgage even if your partner is in debt.
Just be aware that your financial circumstances will impact the mortgage deal you’re offered. If either of you are in debt, then you probably won’t qualify for the most competitive interest rates, and the amount you can borrow may be limited.
As part of the joint mortgage application process, the lender will look at both partners’ income and outgoings together. They’ll look at not just how much debt you have, but also:
- the reason for getting into debt – if it was for emergency repair work, this will look better than if you went on a shopping spree, for example
- the types of credit cards and loans you have – some types of credit are seen as a high risk, such as payday loans
- what action (if any) is being taken to pay off the debt – if you are managing your debt well and are repaying it on time, this could work in your favour
- debt-to-income ratio - i.e., how much your debt repayments are each month, compared to your monthly income. The lower this is, the better
- affordability – mortgage providers need to make sure you can afford to make your repayments on top of your other outgoings (including your debts)
- credit history - if you’re a responsible borrower, then you’ll be seen as less risky to lend to (compared to someone who has a history of missed payments)
- credit utilisation ratio – try to keep your spending to 25% (or less) of your credit limit, across all your credit cards and overdrafts. This will boost your credit score and show lenders that you aren’t heavily reliant on credit
- how much available credit you have – if you have a high credit limit on your credit card, then this could work against you (even if you don’t spend it), as lenders will know that you have a lot of credit at your fingertips
Should you pay off debt before buying a house?
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 debt means there’s less room in your budget for mortgage repayments. So, 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 many of these debts as possible before applying. Reducing your debt will lower your debt-to-income ratio and credit utilisation ratio – and boost your credit score. Plus, having less debt may mean lenders are more likely to accept your mortgage application, lend you more money, and with better interest rates.
If you have savings to put towards your debts this would be ideal, as the interest you’ll earn on savings is likely to be less than you’re being charged on your debts. However, bear in mind that using savings means you may have less deposit to put down on your house.
If you can’t pay off your debts in full, it would be beneficial to put a realistic and sustainable plan in place to chip away at them over time. Some lenders may allow you to borrow more if you have a plan in place, but not all lenders will accept this, as there’s no guarantee that you’ll stick to it. Be aware that you must pay at least the minimum amount, otherwise your credit score will be affected.
Am I liable for my partner’s debt?
In the UK, you’re only liable for your partner’s debt if you have taken out a financial product (such as a credit card or loan) in joint names.
With joint debts, you are both jointly and severally liable, which means you are both legally responsible for paying the full amount. So, if you or your partner stops paying, the other party will need to cover the full payment – not just ‘their half’.
Should I help pay off my partner's debt?
It’s entirely your decision as to whether you help your partner pay off their debt. If you’re in a rush to buy a home, you may consider using some of your own savings to pay off as much of your partner’s debts as soon as possible. With less debt, you may be eligible for better mortgage deals. But it’s important to think carefully before doing this.
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 own 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.
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. Don’t be tempted to take out a loan in your name to pay off their outstanding balances, as this will land you in debt.
You could cut your spending on non-essentials (such as takeaways or TV subscriptions) and put the extra money you save towards paying off the outstanding balances. Sticking to a budget will put you in good stead when it comes to applying for a mortgage, as your lender will be able to see that your spending is under control.
Read on to find out where to get debt advice.
Can I buy a house in my name only even if I am married?
If you’re unmarried, you may be able to buy a house in your name only. If your partner's debts are not tied to you in any way, they shouldn't influence your credit score or your mortgage lender's decision. However, if you are married or in a civil partnership, most mortgage providers will prefer you both to be named on the mortgage.
Before you make a decision, it’s worth bearing in mind that if you apply for a mortgage on your own, lenders may only take your income into account when they run affordability checks. This means the amount may be lower than if you combine your incomes together and make a joint application.
Additionally, 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 on 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.
Find out how to talk about money with your partner, if you don’t know where to start.
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