Possibility of increasing mortgage?

Pleaseadvise

In a few weeks our 5-year fixed mortgage deal with the Woolwich will come to an end. Our payments will go down slightly on their variable rate but obviously will be likely to go up in the future. We would like to enter another fixed mortgage rate deal but since the first one we have built up serious credit card debt. We added an extension to our very small house 2 years ago. We had all the relevant planning permission and passed all the inspections, so the larger house should now be worth a lot more than it was, but we didn't have all the cash needed for the build. (It cost a bit over £40,000. We got 9 quotes and went with the second cheapest, some were nearly twice as much.) We ended up owing over £12,000 to 3 credit cards and the minimum payments are £250 a month. We have made all payments so far, both the mortgage and credit cards. Is there any chance the Woolwich will increase our mortgage to pay off the credit cards? The total would still be a long way below 4x our income. Would there be any point in getting the house valued before we go to ask them, so they can see that it is worth a lot more than the mortgage now? Or do they automatically say no since house prices started going down?
Is there any chance we could make things worse for ourselves by showing them all our financial details? Can they decide we are now a bad risk (even though we have made every payment on time) and put up our mortgage interest rate on that basis?

Robert_Sterling

I do not think that you having a valuation done is a good idea. A lender would want you to pay a fee for them to have a valuation done if they were thinking of increasing your outstanding balance.

Pleaseadvise

Thanks for the answer, Robert. Do you, or does anyone else, know if they are likely, with our circumstances described above, to think about increasing our outstanding balance? And could they not only decline to increase the balance but also make us even worse off by putting the interest rate up? Once we are on the variable rate, are they allowed to change it without our consent?

dimbo61

They cant put the rate up that you would be going onto once your fix ends.
You should use the extra money you will now have ( cut in mortgage payment ) to pay off your most expensive CC card first and pay for the valuation with Woolwich and see what they say. GOOD LUCK

chivers1977

FYI

It would be a further advance application so the fee would be £150 FA fee plus the product fee (£995 normally). If the application is declined then there you would, as a maximum, only have the £150 fee charged as a withdrawal fee.

In terms of the lending, you may well get a shock re the value of the property. It will almost certainly not be worth what you expect it to be. What is your estimated mortgage amount required and estimated property value?

opinions4u

Pleaseadvise wrote: »

In a few weeks our 5-year fixed mortgage deal with the Woolwich will come to an end. Our payments will go down slightly on their variable rate but obviously will be likely to go up in the future.

Use this as an opportunity to reduce the debt on your highest charging credit card, even if it's just for a couple of months while you re-organise your mortgage.

We would like to enter another fixed mortgage rate deal but since the first one we have built up serious credit card debt. We added an extension to our very small house 2 years ago. We had all the relevant planning permission and passed all the inspections, so the larger house should now be worth a lot more than it was

How much did you pay for the house and when? Home improvements rarely add as much to property value as their cost. Try using the Nationwide House Prices Calculator to estimate the value of the property excluding the extension. Then add on 2/3rds of the cost of the extension as well. Not perfect, but a good way to estimate the real value of your house.

but we didn't have all the cash needed for the build. (It cost a bit over £40,000. We got 9 quotes and went with the second cheapest, some were nearly twice as much.) We ended up owing over £12,000 to 3 credit cards and the minimum payments are £250 a month.

Depending on the interest rates on the cards, this could take you longer than the mortgage to repay. Warning to other readers - this is not usually a good idea!

We have made all payments so far, both the mortgage and credit cards. Is there any chance the Woolwich will increase our mortgage to pay off the credit cards?

It's possible. Alternatively you could see a whole of market mortgage adviser to see if there are better deals available by remortgaging.

The total would still be a long way below 4x our income.

If that's a joint income, you may be stretching yourselves and a lender will know this.

Would there be any point in getting the house valued before we go to ask them, so they can see that it is worth a lot more than the mortgage now?

It would give you an idea as to value, but they will, ultimately, want their own valuation, not the view of a local estate agent. Use the tool above as a starting point.

Or do they automatically say no since house prices started going down?

The mainstream lenders are usually quite happy to lend to customers who they believe will repay them and who have equity in their property.

Is there any chance we could make things worse for ourselves by showing them all our financial details? Can they decide we are now a bad risk (even though we have made every payment on time) and put up our mortgage interest rate on that basis?

Unlikely if their terms put you on to their SVR. By adding the £12k to the mortgage you may not be able to access the best fixed or tracker deals though and end up paying a higher rate on the whole of the mortgage.

To get more helpful answers from the brokers on here post:

1) Purchase price of property
2) Date of purchase
3) Remind us you've extended at a cost of £40k
4) What you individual incomes are
5) How much you currently owe on the mortgage
6) How much you owe on loans and cards elesewhere
7) Any loans that won't be repaid if you raise captial (and their monthly payments)

If your income's considered good enough and there will be a decent amount of equity in the property after raising captital, then you should be able to do this.

But don't just limit yourself to Woolwich unless their deals are genuinely the best for your circumstances.

Pleaseadvise

Opinions4u, your post is very enlightening. We hadn't realised we would only add 2/3s of the extension cost to the house value (though we needed the extension desperately - it was never planned as an investment).
I will look up the details you want us to add and come back later. Other mortgage providers seem unlikely to take us on, though. We went first to Natwest, 5 yrs ago, and we had only managed to tell them we wanted to buy our council house when they politely but firmly cut us off saying they never lent for that purpose. We hadn't even told them anything about our income! So we were pretty surprised when Woolwich agreed to give us a mortgage. Then there were complications which I haven't gone into yet.

The fixed rate is 5.29% (will check the documents) and it is going down to 4.99% (we went in a few weeks ago and were told this). This will only save us a very few pounds a month, I thought. (Mortgage started at £60,000.) It won't give us much scope for paying extra off the credit cards, unfortunately.

Thanks to the repliers and will return with more details.

Pleaseadvise

Sorry about never coming back as I said I would! My husband got worried about sharing too much on the internet (it's not like we've added our address or phone number!) and we decided to just go to the mortgage advisor and see what happened.

The mortgage advisor said we should apply for a rate switch for the original mortgage and also apply for the extra borrowing at a slightly higher rate. (4.29 for the rate switch and 4.99 for the extra.) We did.

I'm glad to say that a letter about the rate switch came through today. It's going ahead, we don't have to do anything. There is no fee to pay for this, and our monthly payments will drop by £30. So that's great news as I was worried about messing up the whole mortgage by even asking about the credit cards.

No letter so far about the extra borrowing. The mortgage advisor seemed to think it would be no problem at all. On the other hand, she also thought the house was worth a lot more than the Nationwide House Prices Calculator did. The calculator thought the original house had gone down from £161,000 5 years ago to £153,000 now. Adding two-thirds of the extension cost would mean the larger house is worth £180,000. The mortgage advisor started off by saying a four-bedroom house in our area would be worth about £250,000 and then, seeing our very surprised faces, put it down to £230,000. Are they always so slapdash in their estimates? We'd explained clearly that the house started off 2-bedroom and we'd extended it.

Applying for the extra borrowing will cost us £150. I made a point of asking how much the valuation would be and the advisor said it was included.

Maybe this information will be helpful to anyone else with the Woolwich. I'll update when I know if the additional borrowing is accepted or not.

Pleaseadvise

How odd. We've just got a text:

[FONT=&quot]Your mortgage offer has been issued and sent by 1st class post. Completion details will be supplied by your solicitor. Yours sincerely Woolwich

Either the text took 2 days longer to get to us than the post, or this refers to the extra borrowing.

Whichever it means, what is this about a solicitor? The mortgage advisor didn't say we'd need to get one, and the letter we got Wednesday said we didn't need to do anything at all for the rate switch to take effect.
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dimbo61

Back to the woolwich and keep us informed
I hope its good news and you have got sorted for both parts.
If you can overpay clear the most expensive part first !

chivers1977

A further advance does not require a solicitor and therefore the text appears to be a mistake. However call them to check!