How Debt Affects Your Mortgage Affordability

Credit cards and credit limits

Credit cards affect your mortgage affordability in ways that surprise many applicants. Even if you pay your balance in full every month, some lenders still factor in a notional monthly payment based on your credit limit.

The typical approach is for lenders to apply a percentage of your total credit card limit as a monthly commitment, usually between 3% and 5%. If you have a credit card with a £10,000 limit, a lender using a 3% assumption adds £300 per month to your outgoings. At typical stress rates, this can reduce your maximum borrowing by £15,000 to £20,000.

This catches people off guard because they may carry multiple cards with high limits that they rarely use. A combined credit limit of £20,000 across several cards could cost you £30,000 to £40,000 in borrowing capacity, even if the balances are zero.

However, not all lenders use this approach. Some only factor in your actual outstanding balance and minimum payment. Others ask for your declared credit card spending. This variation means that the same credit card position can have very different impacts depending on which lender you choose.

If you have unused credit cards with high limits, consider reducing the limits or closing the cards before applying. This is one of the simplest ways to improve your affordability at lenders that use the credit limit method.

Car finance and PCP deals

Car finance is one of the most common committed expenditures that reduces mortgage affordability. PCP (Personal Contract Purchase) deals are particularly prevalent, with typical monthly payments of £200 to £400.

Lenders assess car finance straightforwardly: they take the monthly payment and include it in your committed expenditure. A PCP payment of £250 per month translates to roughly £12,000 to £15,000 less borrowing capacity, depending on the lender's stress rate and income multiple.

The key question is the remaining term. If your car finance has less than 6 months remaining, some lenders will disregard it on the basis that it will end before the mortgage begins. Others still include it regardless of remaining term. If your PCP is ending soon, this is another area where choosing the right lender matters.

For HP (Hire Purchase) agreements and personal loans used to buy a car, the same principle applies: the monthly payment is deducted from your available income. Balloon payments at the end of a PCP do not typically affect the monthly commitment calculation, only the regular payment matters.

Student loans: Plan 1 vs Plan 2 vs Plan 5

Student loan repayments are deducted from your income before lenders calculate your affordability. The amount deducted depends on which plan you are on and how much you earn.

Plan 1 (started before September 2012): You repay 9% of income above £24,990 per year. On a £35,000 salary, your annual repayment is approximately £901, or £75 per month.

Plan 2 (started between September 2012 and July 2023): You repay 9% of income above £27,295 per year. On a £35,000 salary, your annual repayment is approximately £693, or £58 per month.

Plan 5 (started from August 2023): You repay 9% of income above £25,000 per year. On a £35,000 salary, your annual repayment is approximately £900, or £75 per month.

While these monthly figures may seem modest, they compound when multiplied through the affordability calculation. A £75 monthly student loan repayment can reduce your maximum borrowing by approximately £4,000 to £6,000 depending on the lender.

For joint applicants where both have student loans, the combined deduction is more noticeable. A couple each earning £40,000 on Plan 2 would have combined repayments of around £190 per month, potentially reducing joint borrowing by £10,000 to £12,000.

Importantly, repaying your student loan early to improve mortgage affordability is rarely worthwhile. The monthly saving is usually modest compared to the lump sum required to clear the loan. The money is almost always better used as additional deposit.

Buy Now Pay Later (BNPL)

Buy Now Pay Later services like Klarna, Clearpay, and PayPal Pay in 3 have become a growing concern in mortgage affordability assessments. As of 2026, these transactions are increasingly visible on credit files and to mortgage lenders.

Previously, most BNPL usage was invisible to mortgage lenders. This has changed. Major credit reference agencies now record BNPL agreements, and a growing number of lenders factor them into their affordability assessment.

The issue is not just the monthly payment. Frequent BNPL usage can signal to lenders that you are relying on credit for everyday purchases, which some interpret as a financial stress indicator. A pattern of regular BNPL usage in the months before a mortgage application can raise concerns even if every payment was made on time.

If you are planning to apply for a mortgage, it is sensible to stop using BNPL services at least three to six months before your application. Clear any outstanding BNPL balances and allow them to close on your credit file.

Unsecured personal loans

Personal loans are assessed by their monthly repayment amount. A £10,000 personal loan with a £200 monthly payment will reduce your borrowing by roughly £10,000 to £12,000.

Some lenders focus on the monthly payment, while others also consider the outstanding balance. A lender that focuses on monthly payment will treat a £10,000 loan with 12 months remaining the same as a £10,000 loan with 48 months remaining, as long as the monthly payments are similar. However, a lender that considers balance may view the longer-term loan less favourably.

As with car finance, some lenders disregard loans with fewer than 6 months remaining. If you have a loan that is nearly paid off, check whether your preferred lender applies this rule, as it could meaningfully improve your result.

Strategy: clearing debt before applying

If you have the savings to clear short-term debts before applying for a mortgage, it can significantly improve your affordability. The key is to prioritise strategically.

Highest impact: Clear debts with the highest monthly payments first, regardless of balance. A credit card with a high limit but low balance should be closed or the limit reduced. A PCP deal ending in 3 months can often be settled early for a modest fee.

Close unused credit cards: If you have old credit cards with high limits that you never use, close them or request limit reductions. This removes the notional payment from lender calculations.

Do not take on new credit: Avoid any new credit applications in the three to six months before your mortgage application. Each application leaves a footprint on your credit file, and new debts directly reduce your affordability.

Keep deposit in mind: There is a trade-off between using savings to clear debt and maintaining a larger deposit. In many cases, clearing a £5,000 debt that has a £200 monthly payment improves your borrowing by more than the £5,000 you lose from your deposit. But this depends on your specific LTV position and the lenders available to you.

Check your figure with and without debts

Because different lenders treat debts differently, the best approach is to check your affordability across the market with your current debt position, and then model what would change if you cleared specific debts.

Mortgage Affordability lets you do exactly this. Enter your details including all current commitments, see your results across 60+ UK lenders, then adjust your debts to see how your borrowing capacity changes. The tool was designed by a CeMAP-qualified mortgage professional to give you the same insight a broker would provide.

Last updated: April 2026