Large personal loans could prevent you from getting a mortgage

Bad Credit


The Bank of England has recently commented on the rise of personal loans and how personal loans could pose a danger to the UK economy.

As professional mortgage advisors and financial intermediaries, we are becoming increasingly aware of the rise of mortgage applicants with high-value loans and hire purchase agreements.

Many mortgage applicants are unaware of just how damaging these loans can be on getting a mortgage approval.


How the mortgage lenders view your loan*


  • An average single applicant earning £25,000 per annum with no debts can expect to borrow around £112,500.
  • An average single applicant earning £25,000 per annum with a £10,000 car loan, paying £300 per month interest, can only expect to borrow £97,000.

It’s not always this straightforward. Some lenders will reduce the loan amount even further based on their own risk assessment of affordability.

  • Another popular UK lender (who we won’t name) will lend up to £106,250 on a salary of £25,000 with a £300 monthly loan payment.
  • When the salary drops to their minimum income threshold of £20,000 with a £300 monthly loan payment they will only lend £65,508! That’s a £40k difference!


What to do if you are thinking of getting a mortgage


Clear as much debt as possible without leaving you in a position to affect your deposit or property buying costs. It’s usually the big loans that have the most impact on a mortgage decision. Don’t worry so much about a £500 credit card balance.

Ask yourself, Do you need that fancy new car or would you prefer to own your own home? If you act now and be sensible, you won’t find it a struggle to get a mortgage in the future.

Do not take out PayDay loans. We have written a separate article on the damage that PayDay loans can do.

Keep your credit profile clean and monitor your credit file by using CheckMyFile. They are the only credit reference agency to provide your credit report from the four big credit reference agencies in the UK for an all-in-one report. They combine data from Experian, Equifax, CallCredit and Crediva.


*These figures have been calculated using publically available calculators via lender websites that are only allowed to be used by mortgage intermediaries. These figures are subject to change but are correct as of the date and time this article was published. These figures are to be used as a very rough general example of borrowing and are not tailored to your individual circumstances. These figures do not form part of any loan agreement, offer or contract.


First Published on: 26 Jul 2017