Will buying a car on finance affect getting a mortgage?

We explain the impact of car finance on your mortgage application, and the factors lenders look for in determining whether to approve finance...

Quick guide to car finance

The majority of new cars are bought or leased on finance, and let’s face it, most of us are unlikely to buy a house without the aid of a mortgage.

Lenders examine a lot of different areas before they make a mortgage offer, and car finance is one of them. They try to build up a complete picture of your financial situation, which includes any debts and your typical monthly outgoings, all of which count towards the amount of money they will lend you. We explain what they’re looking for below.

Will car finance affect a mortgage application?

Yes, it will. Banks and other finance providers are required by law to thoroughly examine an applicant’s finances before they issue a mortgage offer. That involves looking at lots of different elements, such as your credit rating, your employment status, your history of repaying loans and any debt you might have – among plenty of other factors.  

Car finance is a form of debt, so lenders will include it in their assessments. Although all finance providers have different criteria, essentially, the bigger the debt against your car, the lower the amount they’ll lend you for a mortgage.

Will car finance stop me from getting a mortgage?

Only if you can’t afford the repayments on both the car and the house. If you can definitely afford both the mortgage fee and the repayments on the car – along with any other known monthly payments, such as your mobile phone bill – then there’s no reason why car finance alone should stop you from getting a mortgage. Provided everything else checks out and your application is clean and sensible, lenders are likely to offer you a mortgage.   

Lady signing car finance agreement in a showroom

Problems arise when applicants push themselves to or beyond their financial limits. If, for example, you’re applying for a particularly large mortgage and your monthly car finance repayments are high, you might struggle to afford both lots of repayments. Equally, you might have a relatively cheap car finance repayment, but significant other debts, which collectively add up to high monthly outgoings.

Generally speaking, that’s the point at which lenders would refuse to offer you a mortgage, although other factors are considered. Remember that it’s your overall level of debt – not just car finance – that lenders examine.

Can I apply for car finance and a mortgage at the same time?

You can, but it isn’t a good idea. The more applications for finance you make in a short space of time, the less attractive you are to lenders, so it’s better to apply for car finance and a mortgage at different times.

Formal applications appear on your credit history, and regular applications for finance – be it for a house, a car or anything else – are a cause for concern for lenders, so it’s a good idea to keep them to a minimum.

It’s often possible to do an eligibility check or a ‘soft’ check to see if you qualify for certain types of finance. These won’t tell you for certain whether a lender will make you an offer, but they will give you a good idea and they don’t appear on your credit history. It’s also possible to get a copy of your credit report for free from Experian, Equifax and Callcredit; this will give you a good idea of your overall financial situation.

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