Credit card balances have increased by almost 10% and this is starting to have a knock-on effect on mortgage applications.
This is the warning issued by mortgage brokers today after data from UK banks revealed the extent to which people are in debt as a result of the cost of living crisis.
UK Finance, the trade body for banks, said outstanding balances on credit card accounts grew by 9.9% over the year to March 2024.
It reported that 49.8% of outstanding credit card balances had accrued interest.
Now that the cost of living has skyrocketed in recent years interest rates at the highest level in 16 years It’s no wonder so many people use credit cards as a means of staying afloat financially.
Indeed, mortgage brokers have noticed a rise in the number of customers with higher credit card debt and are concerned that this could impact mortgage success for many.
Justin Moy, director of Chelmsford-based EHF Mortgages, said via the Newspage Agency: “Increasing credit card balances is a huge problem. It is made worse by higher interest rates and the cost of living crisis. It is fueled by the use of credit cards to pay everyday household bills and is exacerbated by the lack of balance sheet surfing, with more borrowers facing interest rates of more than 25% per annum instead of the 0% options they to enjoy. for years.
“With mortgage lenders less willing to consolidate unsecured debt, the spiral of expensive card lending is not abating, while mortgage rates remain high.”
Meanwhile, Dariusz Karpowicz, director of Doncaster-based Albion Financial Advice, also speaking to Newspage, explained that higher outstanding balances on credit cards could negatively impact credit scores and general affordability assessments.
“We are seeing more and more customers struggling to pay off their credit card debts, complicating their mortgage applications,” he added.
The best credit card tips for potential mortgage borrowers
The advice to anyone with credit card debt who is currently considering a mortgage is to make paying off debt a priority.
It’s also a good idea to check your credit score and find ways to improve it in the future.
Kara Gammell, personal finance expert at MoneySuperMarket, had some tips on how to do this.
“Register on the electoral register,” she advised, “registering to vote can help improve your credit rating. Registering is quick and easy via the gov.uk website.”
She also urged credit card users to set up direct debits to make their refunds so they never miss a payment.
Keeping expenses to a minimum is also essential for anyone paying off debt.
Gammell added: “Use credit with care – try to keep your credit card spending well within the available credit limit and try to avoid having too many card accounts.
“Lenders may think you are too dependent on credit if you borrow up to your limit every month. Check the interest rates on your cards and loans – switch where possible to get a better deal and a lower rate, including 0% interest deals, which can help you pay off your debt faster.”
Gammell said people could try using MoneySuperMarket’s Credit monitor to check their credit score without affecting their rating. It also provides personalized tips on how to improve your score.