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How does Debt Consolidation affect getting a Mortgage?

If you’re concerned about the impact a debt consolidation loan could have on your future mortgage application, read this complete article by our experienced team.
A woman holding a key to her house.

Consolidating your debt can be a great way to gain control over your finances and improve your financial situation. However, it is important to understand how debt consolidation can affect getting a mortgage.

We explore what debt consolidation loans are, as well as how they can positively and negatively affect qualifying for a mortgage.

What is Debt Consolidation?

Debt Consolidation is the process of taking out a single loan to pay off multiple outstanding debts, which can be an effective way to lower your monthly repayments and make your debt more manageable.

Does Debt Consolidation matter when applying for a Mortgage?

In short, debt consolidation does matter when applying for a mortgage. Debt consolidation could have any of the below effects on a mortgage application.

  • If you've consolidated all your debts into one monthly repayment, a mortgage lender would consider the total amount of debt when evaluating your application. This can make it more difficult to qualify for a mortgage or result in a higher interest rate being offered.
  • If you consolidate all of your debts and continue to make regular repayments, your credit score will likely improve. This can make you a more attractive borrower to a mortgage lender.

Ultimately, whether debt consolidation matters when applying for a mortgage depends on how much debt you’re in and whether you are struggling to keep up with multiple monthly payments. If you’re already managing your debts responsibly, there may be no need to consolidate debts prior to a mortgage application.

Do I need to declare a Debt Consolidation Loan when applying for a Mortgage?

You would need to declare a Debt Consolidation Loan when applying for a mortgage. When you apply for a mortgage, you are required to disclose both secured and unsecured loans, as a lender will want to know what your financial situation looks like before offering you a mortgage.

If you would like to know how a debt consolidation loan (whether it’s a secured loan or unsecured loan) can affect your mortgage application it is best to speak to a mortgage broker for clarification.

Can Debt Consolidation ever make it more likely I’ll be accepted for a Mortgage?

Consolidating debt can have a varying effect on your credit score but, providing you keep up with your debt consolidation loan repayments, it could help to improve your chances of being accepted for a mortgage. This is because:

  • it will reduce the number of outstanding debts that you owe, so you could look like a more reliable borrower.
  • it could help improve your credit rating by reducing your credit utilisation ratio (the amount of available credit you use). A lower credit utilisation ratio indicates to lenders that you're a responsible borrower managing their debt well.

Of course, there are some potential downsides to consolidating your debt before applying for a mortgage. For example, consolidating your debts into one loan could mean that you end up with a higher overall loan amount, which could make it harder to qualify for the mortgage you want.

The bottom line is that there is no guarantee that a debt consolidation loan will help you improve your chances of being accepted for a mortgage. The lender is going to look at your entire financial history – not just your credit score to see proof that you can manage your money responsibly.

For this reason, it’s best to start working on your finances as early as possible. Build up a strong credit report and save as much money as you can for a down payment. With a little preparation, you’ll be in a great position to get the home of your dreams.

Should I Remortgage to Consolidate Debt?

If you’re struggling to keep up with multiple debts each month, you may be considering consolidating your debt by remortgaging your property. Although this can be a good way to reduce the amount of interest you’re paying and simplify your monthly repayments, it’s important to consider the pros and cons carefully before deciding.

To whey up the pros and cons and find out if this is a good solution to your situation, you should contact a qualified financial advisor who specialises in debt and mortgages.

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How Consolidation Express could help

Here at Consolidation Express, our goal is to help people improve their financial situation with a consolidation loan. As a broker, we work with multiple lenders who will consider all credit scores for a debt consolation loan.

If you are looking for a consolidation loan, please complete our online application.

Apply Now
An advisor pointing to a screen displaying Rep APR.

APRs from 5.8% to 89.9%

We are a broker, not a lender.

Unsecured Loan Representative 69.9% APR

Borrowing £7,500 over 36 months, repaying £502 per month, total repayable £18,083. Total cost of credit £10,583. Interest rate 69.9% (variable). The lenders on our panel offer loans for 12-60 months, with rates from 5.8% APR to 89.9% APR. The Representative Example is based on all loans paid out by lenders between 19th Apr 2022 and 23rd Dec 2022.

Secured Representative 11.7% APR

If you choose to add fees to the loan: Assumed borrowing of £25,000 over 120 months, plus a broker fee of £2,500 and a lender fee of £250 would result in monthly repayments of £345.55, the borrowing rate is 8.6% (variable), the APRC is 11.7% (variable), total charge for credit £16,466.00 and the total amount payable £41,466.00. You can opt to pay the lender and/or broker fees upfront, your adviser will discuss these options with you.

Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on a mortgage or any debt secured on it. All rates vary subject to loan amount, loan type and status. Repaying your debt over a longer period of time may increase the amount you pay.

Further reading

What are the Different Kinds of Unsecured Loans?

Understand what an unsecured loan is, and how best to use the different kinds of unsecured loans in 2023.

What are the Different Types of Secured Loans?

With so many different types of loans available, it can be difficult to know which is right for you. For more information on secured loans, read this expert article.

Persistent Debt – What Does it Mean for Your Credit?

Persistent debt can affect your credit rating for a significant time period. Read to find out more.