I’ve obtained £4,000 of bank card debt will it cease me getting a mortgage?

I have got £4,000 of credit card debt that I am gradually but slowly paying back at a rate of about £150 per month.

The debt built up a few years ago and I was originally just paying the minimum monthly amount but have now stepped up my efforts to get it cleared.

I want to buy a home with my partner, we are both first-time buyers earning about £35,000 each and have saved a deposit of about £20,000, so the numbers stack up to do this.

I’d rather use the deposit towards the flat we hope to buy than clear my debt and then just continue to pay off the credit card over time.

I checked my credit rating and it is decent but will my credit card debt stop me getting a mortgage?

Help: Our reader is worried their £4,500 of credit debt could stop them getting a mortgage

Ed Magnus of This is Money replies: It’s great that you are thinking ahead and checking your credit rating before applying for a mortgage – I fear most people don’t.

Your credit card debt certainly has the potential to affect how much you can borrow but it is unlikely to stop you getting a mortgage.

However, it’s important to disclose any debts you have to the lender at the point of application – as not doing so could lead to a rejection.

The size of your deposit matters and could impact the type of mortgage rates you are able to secure, so it’s good you are pondering what to do.

For example, if you are aiming to buy a £200,000 property with a 10 per cent deposit of £20,000 then you could potentially secure rates as low as 4.62 per cent – obviously this will be subject to eligibility, which a mortgage broker will be able to check for you.

However, if you are trying to buy a property worth more than £200,000 with £20,000 as a deposit then you’ll no longer meet the criteria for mortgage rates aimed at those buying with a 10 per cent deposit.

Instead you’ll have to settle for mortgage deals aimed at those buying with a 5 per cent deposit – the lowest of which is currently offered by Barclays at 5.03 per cent.

Don’t forget there are other costs associated with buying a property, which you need to factor in alongside the deposit.

For example, you’ll need to pay a conveyancer or solicitor to manage the legal side of things – that will typically cost around £2,000.

You’d also be wise to pay for a home buying survey, which will typically cost anywhere between £500 and £1,500 depending on the size of the property and level of survey you require.

You might also be liable for stamp duty if you are planning on trying to buy a property worth £300,000 or more.

First-time buyers currently pay stamp duty if their home costs more than £425,000. This will drop to £300,000 from 1 April.

This means for example that instead of paying no stamp duty on a £400,000 purchase, from next month someone would have to pay £5,000. 

From what you have said it sounds as if you will be below the new stamp duty threshold, but this is something to check. 

To advise on whether you should pay off the debt first and buy with a smaller deposit or keep the debt and borrow less, we spoke to Luke Thorne, associate director of mortgage broker SPF Private Clients.

Luke Thorne , associate director of mortgage broker SPF Private Clients

Luke Thorne replies: Credit card debt in itself won’t prevent you from getting a mortgage, assuming that the minimum amount is paid each month and those payments are up to date. 

However, any outstanding debt is taken into account by the lender when calculating your affordability and could reduce the maximum mortgage possible.

As you are first-time buyers, products such as Nationwide’s Helping Hand mortgage are worth a look. 

As you have a joint income of £70,000, you could be able to borrow up to six times this amount. 

However, even with the enhanced loan-to-income potential offered with such a product, your credit card debt will impact that borrowing potential.

In theory, Nationwide could lend around £355,000 if you had no credit card debt. 

With the £4,000 of credit card debt factored in, the mortgage available to you would be around £30,000 less, based on a 30-year term, so does have a sizeable impact.

If you cleared the credit card debt in order to maximise the mortgage amount, that would reduce your deposit from £20,000 to £16,000, plus you still need to cover other costs such as stamp duty and legal costs.

If you could find another 5 per cent deposit – perhaps a gift from your parents, for example, then Halifax would lend the same amount with or without the £4,000 credit card debt on a 90 per cent loan-to-value product based on a five-year deal with 30-year term.