Mortgage While Settling Old Debts: Can You Still Get Approved?

Many people begin working on old debts shortly before or during the mortgage process. Whether you are repaying overdue accounts, clearing historic defaults or setting up settlement arrangements, the big question is whether you can get a mortgage while settling old debts. The answer depends on the type of debt, how recently issues occurred and how lenders interpret your overall financial profile.

This guide explains how lenders review applicants who are actively settling older debts, how this affects affordability, and what documents you may need to provide. This article gives general information only and does not offer regulated mortgage advice.

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Do Old Debts Affect Your Mortgage Application?

Yes — lenders assess both your current commitments and your historic financial behaviour. Even if the old debt is now being settled, lenders will still review:

• Whether the debt previously defaulted
• How old the default or issue is
• Whether it is now marked as settled
• Whether there are any repayment arrangements still ongoing
• How the debt appears on your credit report

Some lenders place more weight on recent activity than old issues.

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Can You Get a Mortgage While Settling Old Debts?

Often yes — but it depends on the nature of the debt and how it is being settled.

More likely accepted by lenders:

• Debts that defaulted years ago and are now settled
• Old utility, telecom or small consumer debts
• Low-value debts
• Debts settled in full before application

More sensitive for lenders:

• Very recent settlements
• Large-value debts
• Multiple debts being cleared at once
• Settlement agreements still in progress
• Debt management plans (DMPs)
• Unsettled or partially settled defaults

Lenders will assess the full picture rather than one item in isolation.

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What Happens When You Settle a Debt Before Applying?

Settling a debt can be viewed positively, as it shows willingness to resolve issues. However:

Short-term impact:

Your credit file may show recent activity, which could temporarily lower your credit score.

Long-term impact:

The account will show as “settled” — a positive indicator for many lenders.

Visible to lenders:

• Default date remains unchanged
• Settlement date appears
• Payment history remains visible

The older the default date, the better.

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How Lenders Assess Old Defaults Being Settled

When lenders evaluate a mortgage while settling old debts, they typically consider:

1. The Age of the Debt

• Under 1 year old: High impact
• 1–3 years old: Moderate impact
• 3–6 years old: Lower impact
• Over 6 years: No longer appears on credit file

The age of the default matters more than the settlement date.

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2. Whether the Debt Is Fully Settled

A fully settled debt is viewed much more favourably than one still outstanding.

Partially settled debts (where the creditor accepts a reduced payment) may raise questions depending on lender criteria.

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3. The Debt Amount

Small-value historic debts are often considered low-impact.
Large-value defaults may require specialist lenders.

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4. The Type of Debt

Lenders distinguish between:

• Consumer or mobile debts (often more lenient)
• Credit card or loan defaults (more serious)
• Mortgage arrears or secured loan issues (most serious)

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5. Whether There Are Multiple Old Debts

A single settled debt is normally easier for lenders to consider than multiple outstanding or recently settled debts.

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Can You Apply for a Mortgage With an Active Debt Settlement Plan?

Some lenders may accept applications if:

• The settlement is nearly complete
• The value is low
• There is a clear repayment history

However, many lenders prefer the debt to be fully settled before the mortgage is completed.

Active debt repayment plans may:

• Reduce affordability
• Signal previous financial difficulty
• Require lenders to request additional documentation

Specialist lenders may offer more flexibility.

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Impact on Affordability Checks

Active repayments for old debts reduce disposable income.
Lenders will consider:

• Monthly repayment amount
• Remaining term
• Whether the debt will be cleared before completion

If settling the debt results in no ongoing payments, affordability may improve.

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How Your Credit File Shows Settled Old Debts

Your credit report will display:

• Default date (unchanged after settlement)
• Settlement date
• Payment status updated to “settled”
• Zero outstanding balance

A settled default can still be viewed positively, especially if it is older.

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Mortgage Options With Settled or Settling Old Debts

Depending on your situation, your options may include:

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1. High Street Lenders

May consider:

• Older settled defaults (typically 3–6 years old)
• Small-value historic debts
• Applicants with strong current financial stability

High street lenders usually require defaults to be settled for at least 12–36 months.

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2. Building Societies

Often take a manual approach:

• Look at circumstances behind the debt
• Assess current behaviour rather than focusing solely on history
• Consider lower-value or older settled debts

This can help applicants with unique circumstances.

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3. Specialist Lenders

More flexible and may accept:

• Recent settlements
• Multiple settled defaults
• Larger-value debts
• Active repayment arrangements

However, specialist mortgages may come with higher rates and larger deposit requirements.

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How Deposit Size Affects Approval Chances

Deposit size can significantly influence lender decisions.

• 5% deposit — Less flexible; stricter lenders
• 10% deposit — Wider choice; some lenders may accept older settled debts
• 15–25% deposit — Good position for applicants with multiple old issues
• 25%+ deposit — Strong options, including many specialist lenders

A larger deposit helps reduce perceived risk.

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What Documents Lenders May Request

Applications involving old debts being settled may require:

• Full credit report (all agencies)
• Proof of settlement (where relevant)
• Bank statements showing stable recent behaviour
• Explanation of circumstances (if requested)
• Evidence of manageable existing commitments

Clear documentation can make underwriting easier.

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Common Applicant Scenarios

Scenario 1: Old mobile defaults settled recently

Many lenders may still consider, especially if defaults are older than three years.

Scenario 2: Large loan default settled last month

Specialist lenders likely needed.

Scenario 3: Two defaults from four years ago, both settled

High street lenders may consider depending on other factors.

Scenario 4: Debt management plan nearly finished

Some manual-underwriting lenders may consider applications, depending on affordability.

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How to Strengthen Your Application (General Information Only)

Many applicants take steps such as:

1. Reviewing credit files for accuracy

Ensure settlement dates and balances are updated.

2. Avoiding new borrowing

New loans may reduce affordability and signal instability.

3. Reducing expenditure

Supports stronger affordability evidence.

4. Building a larger deposit

Wider lender choice and more favourable terms.

5. Showing stable recent financial behaviour

Lenders focus heavily on the last 3–12 months.

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Summary

Applying for a mortgage while settling old debts is often possible, but outcomes depend on the age of the debt, the settlement status, the amounts involved and your recent financial conduct. Settled debts are viewed more favourably, especially when older, while active repayment plans or recent settlements may require specialist lender options.

This article provides general information only. For tailored support, regulated mortgage advice is required.