Does Paying Off Debt Improve Mortgage Chances? 7 Truths You Should Know

If you’re thinking about applying for a mortgage, you’ve probably asked yourself whether paying off debt will help — or whether it even matters. Many people assume clearing every debt is essential before applying, while others worry about using savings that could go towards a deposit.

The truth is more nuanced. Paying off debt can improve mortgage chances — but not always in the way people expect.

At Mortgage Bridge, we review affordability and debt every day for clients with all kinds of circumstances. In this guide, we break down the 7 key truths lenders consider so you can make informed decisions before applying.

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Truth 1: Debt Affects Affordability More Than Credit Score

One of the biggest misunderstandings is believing debt only affects your credit score.

In reality, lenders are far more concerned with:

• Monthly debt repayments
• How those repayments affect affordability

Even small debts can reduce how much you’re allowed to borrow if they increase your monthly outgoings. Clearing debt often helps because it frees up affordability — not because it magically boosts your score.

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Truth 2: Credit Cards Matter More Than Most Other Debts

Credit cards are particularly important in mortgage assessments.

Lenders look at:

• Outstanding balances
• Credit limits
• Minimum monthly payments

Even if you never carry a balance, lenders often assume a notional payment based on the limit. Reducing balances — or limits — can significantly improve affordability.

We regularly see mortgage offers increase simply by paying down credit cards.

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Truth 3: Paying Off Debt Doesn’t Always Increase Your Borrowing

This surprises many people.

If your affordability was already strong, paying off a small loan or catalogue account may make little or no difference to how much you can borrow.

That’s why blanket advice to “clear all debt” can be misleading. What matters is:

• The size of the debt
• The monthly payment
• How it interacts with the lender’s affordability model

Strategic debt reduction is far more effective than clearing everything indiscriminately.

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Truth 4: Using All Your Savings to Clear Debt Can Backfire

Paying off debt by draining your savings can actually harm your application.

Lenders also assess:

• Deposit size
• Remaining savings after completion
• Financial resilience

If clearing debt reduces your deposit below key thresholds, you may:

• Lose access to better rates
• Be restricted to fewer lenders

This is why the balance between debt reduction and deposit strength is so important.

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Truth 5: Old Debts Matter Less Than Active Ones

Settled debts from the past are far less important than active commitments.

Lenders focus on:

• Current balances
• Ongoing monthly payments
• Recent behaviour

An old, settled loan is usually much less of an issue than an active credit card with a growing balance — even if the older debt once affected your credit score.

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Truth 6: Paying Off Debt Helps More with Specialist Lenders

If you have:

• Missed payments
• Defaults
• A complex credit history

Paying off active debts can significantly improve your position with specialist lenders.

Reducing current commitments shows:

• Improved financial control
• Reduced risk
• Better affordability under stress testing

This can open doors that were previously closed — even if old credit markers remain.

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Truth 7: Timing Matters Just as Much as Paying It Off

When you pay off debt is just as important as whether you do.

Things lenders don’t like to see include:

• Clearing debts using short-term borrowing
• Paying off debt immediately before applying with no savings left
• Closing multiple accounts at once without strategy

A well-timed, well-documented approach almost always produces better outcomes.

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Which Debts Should You Prioritise Before a Mortgage?

If you’re considering reducing debt, prioritise:

1. Credit cards with high balances
2. High monthly payment loans
3. Overdrafts used regularly

Lower-impact debts, such as small fixed loans nearing completion, often make less difference.

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Can You Get a Mortgage Without Paying Off Debt?

Yes — absolutely.

Many borrowers are approved with:

• Car finance
• Student loans
• Credit cards

The key is whether repayments are affordable alongside the mortgage. Debt alone does not mean automatic rejection.

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Common Myths About Debt and Mortgages

“You must be debt-free to get a mortgage.”
False — many homeowners carry some level of debt.

“Paying off debt always boosts your borrowing.”
Not necessarily — it depends on affordability impact.

“Credit score matters more than debt.”
Incorrect — affordability usually outweighs score.

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How to Decide Whether Paying Off Debt Is Right for You

Before making any changes, consider:

• How much each debt costs per month
• Whether clearing it improves affordability
• The impact on your deposit and savings
• The lender types you’re likely to need

This is where tailored advice makes a real difference.

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How Mortgage Bridge Helps You Make the Right Call

At Mortgage Bridge, we don’t give generic advice.

We:

• Analyse how each debt affects affordability
• Test scenarios across different lenders
• Advise which debts to reduce — and which to leave
• Help you balance deposit strength and affordability

We’re here to help if you want clarity before making changes.

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Key Takeaways

• Paying off debt can improve mortgage chances — but not always
• Affordability matters more than being debt-free
• Credit cards usually have the biggest impact
• Using all savings to clear debt can reduce options
• Strategy and timing are critical

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Summary

Paying off debt can improve your mortgage chances, but only when it’s done with a clear understanding of how lenders assess affordability. Reducing the right debts can free up borrowing power and improve lender confidence, while clearing the wrong debts — or draining your savings — can limit your options.

Mortgage lenders care far more about current commitments and monthly outgoings than whether you have ever had debt. Taking a strategic, lender-focused approach before applying can make a significant difference to both approval chances and the deals available.

This guide provides general information only, personalised recommendations must come from a regulated mortgage advisor