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How will your existing debt affect your mortgage prospects? Let’s find out.
Getting onto the property ladder is a big achievement – and a goal for many – but it’s also a big responsibility to take on. This is because it’s a large amount of borrowing to manage and if you don’t keep up with your monthly mortgage repayments, you could lose your home. That’s why you always need to think seriously, before you take out a mortgage, about whether you can afford the repayments.
But if you’ve already got problem debt, can you get a mortgage with someone else? And what effect could this have on both of your credit histories?
Mortgage with debts
Having some existing credit, such as credit cards or a loan, won’t automatically stop you from getting a mortgage – it just depends on how well you’ve managed those debts in the past. Don’t assume that if you’ve got any debt at all, you automatically can’t get a mortgage. In fact, if you have some history of borrowing, this could even make it easier to get a mortgage, as long as you’ve been keeping on top of your repayments.
This is because mortgage lenders look at your credit history, as well as their own criteria, when they’re deciding if you can borrow from them. If you have a history of staying on top of your debt, they might be more likely to lend to you.
But it’s a different story if you’ve got problem debt and you’ve been struggling to repay what you owe. If you’ve had missed payments or defaults in the past, mortgage lenders can see these on your credit history – usually for up to six years. This could mean they will be less likely to let you take out a mortgage or borrowing will only be available at a more expensive rate of interest.
If you’ve already got access to a lot of credit, this could be another reason why lenders might be wary of accepting you for a mortgage. For example, if you’ve got a couple of credit cards and a loan, lenders will see you could potentially use a lot of credit at once and the repayments might stretch your finances – so they might not want to let you take out a mortgage on top of this. Consider waiting until you’ve paid off your loan and cleared your credit cards, before making your mortgage application.
It might be a good idea to use a mortgage broker if you’re applying for a mortgage and you’ve had problems with credit in the past (anything up to six years) but you’re in control of your borrowing now. This is because brokers can look at a range of mortgage deals and find the one that’s right for your situation, which might help if your credit history is less than perfect.
A financial link
Another thing to consider is what would happen to your partner’s credit history if you took out a mortgage with them. Whenever you take out a financial product with another person, this creates a financial link between you. This can be if you apply for joint credit, like a loan or a mortgage but it’s also if you open a joint bank or savings account together.
If you have a financial link with another person, this means their credit history can affect yours and vice versa. So even if your partner hasn’t ever had problems making repayments but you have, it’s possible that lenders will also consider your credit history when they’re making their decisions about whether your partner can borrow.
That’s why you should hold off applying for a joint mortgage until you’ve got your own credit history in order. The best way to do this is to start tackling your existing problem debt. You can do this by getting in touch with your lenders and seeing if you can work out a more affordable repayment schedule.
If you don’t want to do this alone, you can get free impartial advice from the Money Advice Service or you can get in touch with our advisors using one of the options on the left. They can identify whether a debt solution can help you and which one is best suited to your needs. They can also give you lots of advice about how the various debt solutions might affect your partner and home life, both from a positive and negative point of view.
With any debts you take out with another person, you’ll usually be ‘jointly and severally liable’. This means that if the other person can’t or won’t pay the debt for some reason, you’ll be responsible for the whole amount.
Although you might not want to think about it, unfortunately relationships can break down. So if you and your partner were to split up and they couldn’t pay their half of the mortgage, you’d have to cover the whole payment. If you had to deal with this on top of existing problem debt, you might find yourself struggling to cope quite quickly.
Talking it through
If you’ve kept your debts from your partner in the past because you’re worried what they might say or you’re embarrassed, it’s important that you speak out before you come to apply for a mortgage together. We know it can be easier said than done but remember: you can get help and you’re not alone with problem debt.
No matter the extent of your debts, you can work through your problems together – and the best way to start is by facing it head on.
by Emily BancroftBack to blog home