Transferring unsecured debt to a mortgage

[Deleted User]

Hello MSE forums,

I have current unsecured debt to the value of around £22k that I accrued whilst in my final years of university and the two years after that. I'm live with my parents at present.

I want to get a foot on the property ladder but I am in a doubly-difficult position because a) it's never been harder for young people to buy their first property and b) I have high levels of personal debt.

Currently, my loan repayments total around £600 each month, which I can comfortably afford.

What I want to know is whether I'm likely to be successful - or if it's even possible - for me to obtain a mortgage for a property and to transfer my unsecured debts to the property via the mortgage. Or, in other words, if I find a property for (for example) £150k, to obtain a mortgage for £172k that would enable me to pay off my debt and make payments towards my mortgage with the view that after 5 - 10 years, the equity in the house will have risen by the £22k deficit, leaving me 'debt-free'. Does that make sense?

I have been looking at various mortgage providers and although I have found some reject me because of the debt, a few have still made offers, albeit pretty low (£150k). There are a few home-buy schemes aimed at first-time graduate buyers that I have registered an interest for - and for which I seem to be eligible at first glance - whereby the government covers 50% of the property value in an equity-split deal.

So, what I'm wondering is whether I can find a home-buy-type property, get a mortgage for 50% of the value of the property and include in that my £22k so that my unsecured debts are written off and the mortgage is my only debt.

Finally, just to clarify - I can comfortably pay my debts at present and believe I could more than comfortably pay my mortgage debts in the future - I am lucky in that I am reasonably well-paid. At present, however, I can't pay my personal loans off fast enough (the repayments stretch for a further 5 - 6 years) and I'd rather take this opportunity to get onto the property ladder and use the surge in equity from that once property prices pick up to pay my debts off faster.

Any ideas? Is this even possible?

Thanks.

_Andy_

What you're after is a mortgage for more than the property is worth. There aren't any of these on the market any more.

sdooley

No. It is no longer possible to find mortgages exceeding 100% of the equity you own in the property. Doing this is why Northern Rock is in trouble.

There are quite a few mortgages still out there where only a 5% deposit is required. With legal fees etc that's at least £10,000 you need to get on the ladder at the moment (and prices will be lower than today in a few years time).

It's great that you have a good job, and living at home will keep your expenses down even if you don't want to do it forever... Can you make overpayments on your personal loans without incurring penalties? Who knows, if you clear it in three years 100% mortgages might be available again.

happybroker

mortgages over 100% of the value of the property are a thing of the past I'm afraid.

You state that paying your debts off faster is a priority for you, putting them in with the mortgage will have completely the opposite effect I'm afraid, assuming you are planning to take the mortgage over more than 6 years.

If you get a mortgage for 50% of the value of a property and use some of that that to pay the unsecured debt off where is that £22k going to come from to completion the purchase of your half of the value?

You are, unfortunately, barking up the wrong tree here I'm afraid. None of what you are looking at is possible.

posted with the best of intentions

[Deleted User]

Yes, that is the sad news I had expected.

To clarify, what I meant was that I am finding my personal debt repayments quite depressing and even though I can afford the repayments, I'm just a bit frustrated to have sit back and see other friends get on the property ladder where good returns can be had, all because of my debt. My debt gets me down quite a lot and I'm not going to pay it off before I'm 30 at the current rate.

It's a bit chicken and the egg - if I could get on the property ladder, I would be able to pay my debts off faster (assuming property prices inevitably increase again). But, because I have debts, I can't get on the property ladder.

I'm not concerned about paying the debt back over a longer period, but currently I pay out £600 a month and that goes straight to a bank. I was just interested to see if I could continue to pay £600 a month, but at least get something back in the way of equity in a home.

Does your advice still hold for properties in the HomeBuy-type schemes whereby I am only getting a mortgage for 50% of the property value? I assume it still does, given that I wouldn't own the other 50% and so as far as the mortgage provider is concerned, I am getting a 100%+ mortgage still (but just for a smaller amount)?

Thanks.

lonestar1

That would require more than a 100% mortgage - Good luck with finding one of those also if some of that debt is in the form of a student loan doing so may well result in you paying more so be sure to check the APR also its not usually a great idea to turn unsecured debt into secured debt as a rule

happybroker

re the Homebuy thing you are pretty much on the money.

Don't be depressed about the debt, the situation is as it is and by thinking of ways to get this down you are on the right lines, have a look at the debt free wannabee part of this site.

Seeing your friends getting on the ladder can be a bit of a wind up but I see people regularly who have got themselves into real trouble by keeping up with the Jones' so try not to be tempted, I think you may be better off in the long run waiting and it's then you will really appreciate what you have got for putting up with the current situation a while longer.

All the best

lonestar1

Deleted_User wrote: »

I'm just a bit frustrated to have sit back and see other friends get on the property ladder where good returns can be had

Even in the midst of one of the fastest HP crashs weve ever had still the attitude that House Prices only ever go up prevails

Your friends are as likley to be in negative equity as they are to be quids in IMO None of us have a crystal ball you may look back in 12 months and be thankful you didnt snap up a 'bargain' today:beer:

[Deleted User]

Sorry, I didn't meant that house prices always go up. Merely that I think it's a fairly safe assumption that in 3 - 4 years time house prices will be above the point they are going to be at the bottom of this crash?

sdooley

No-one knows where the bottom will be.

poppy10_2

Deleted_User wrote: »

I'm just a bit frustrated to have sit back and see other friends get on the property ladder where good returns can be had, all because of my debt.

It's a bit chicken and the egg - if I could get on the property ladder, I would be able to pay my debts off faster (assuming property prices inevitably increase again). But, because I have debts, I can't get on the property ladder.

Oh Jebus

Financial darwinism will prevail.