Northern Rock - Assistance Required

MrJJC

Hi all,

I currently have a £137,000 mortgage with Northern Rock at the 5 year fixed rate of 5.99%. £118,000 is for the house and the remaining 19,000 was an unsecured loan (again 5.99%). The term is 35 years.

I have been fortunate enough to receive a salary increase due to promotion and would like to use the opportunity to overpay my mortgage as much as possible. (The mortgage will revert to variable September next year).

Now this may be a simple/stupid question so apologies in advance for asking, but should I overpay one particular aspect of this first i.e.the loan or does it really matter?

My intention is to get this down as much as possible so I can ultimately move the mortgage elsewhere, and never fall into this trap ever again.

It may or may not be useful for you to know that I bought and landscaped some land at the back of my garden effectively doubling it's size. I am hoping ultimately this will also contribute to the property value.

Thank you all in advance.

Thrugelmir

Overpay the unsecured element first.

Large gardens are a bonus when selling. Though value is really in the eye of the purchaser. Not everyone has children or are keen gardners. Though you've landscaped the land, somebody else may totally change your personal stamp that you've put on it.

Treat it as your home not as an investment.

MrJJC

Thanks Thrugelmir,

The extension is low maintenance so hopefully wouldn't be too much to deal with for potential buyers. I will bear your comments in mind regarding treating it as a home rather than an investment though!

Thrugelmir

As you may be there a while. Maximise the space for your own enjoyment! Over time the debt will come down. Though it may seem like a mountain at the moment. Some careful budgeting for a while, will help in accelerating the process.

carlw

I would check the small print of your terms and conditions. I believe that Northern Rock allow you to over pay as much as you like and you are able to borrow back any overpayments made on the secured loan only. So i would advise making sure all overpayments are used to reduce the secured loan. This has zero effect on reducing your loan compared to overpaying the unsecured loan but gives you the option to borrow it back should you ever need to. If you were made redundant for example.

This is what i do anyway, so if this isnt the best thing to do i would be interested to hear from others.

Carl

RenovationMan

You should pay off any secured loans as a priority to unsecured ones. The most important point to understand about secured borrowing is that if you default on the repayments, the lender will automatically have the right to apply to the Courts to repossess your home and sell it to recover the money owing to them. With an unsecured loan, as its name suggests, there is no security offered as a guarantee to the lender. As such, lenders view these loans as riskier than secured ones as they can't force an asset sale (usually of your property) to get money back.

I hope this helps.

Thrugelmir

RenovationMan wrote: »

. As such, lenders view these loans as riskier than secured ones as they can't force an asset sale (usually of your property) to get money back.

Lenders can apply to a Court for a Charging Order on the property in the event of default on an unsecured loan. The lender is paid their money on the sale of the property after any higher ranking charges are satisfied, if funds allow. In extreme circumstances it is possible to apply to the Court for the sale of the property.

RenovationMan

Thrugelmir wrote: »

Lenders can apply to a Court for a Charging Order on the property in the event of default on an unsecured loan. The lender is paid their money on the sale of the property after any higher ranking charges are satisfied, if funds allow. In extreme circumstances it is possible to apply to the Court for the sale of the property.

In extreme circumstances, but not as a matter of course as with a secured loan. Usually the debtor can make token payments of £1 to his/her creditors until they get back on their feet and at any rate, the process of getting it through court and initiating reposession proceedings can take years, by which time the debtor can sell their house and repay the debt, or their economic situation may have changed and they can repay the debt.

Provided the court can see that you're trying to sort out your finances, they will not convert unsecured debt into secured debt. Indeed, they can only secure the debt if the equity exists. If the mortgage lender, who already has security on the property, owns 90% of the property then any other creditors can only have a charge against the remaining 10%. They could hardly then force a sale with only 10% charge. As long as the debtor ensures his mortgage is paid, then he is quite safe.

While it is interesting to discuss the finer points of the law, it is a distraction from the original point of the thread. Getting back to the OP, do you agree that the safest route would be to pay off secured debt as a priority to unsecured debt?

Thrugelmir

RenovationMan wrote: »

. Indeed, they can only secure the debt if the equity exists.

A charging order can be obtained whatever the circumstances. The charging order merely gives the creditor a right if sufficent funds are available after settlement of prior charges. Whether the property has equity or not is not an issue on application for one.

Getting back to the OP, do you agree that the safest route would be to pay off secured debt as a priority to unsecured debt?

The issue with repaying the mortgage first is that if the OP decides to remortgage with another lender. That they may require the unsecured debt to be cleared in order to make a mortgage offer. They may decline, as many lenders are currently doing not to consolidate unsecured debt when remortgaging.

RenovationMan

I disagree about the ease in which you think a creditor can convert an unsecured loan into a secured one, but I haven't the desire or energy to debate the point on an internet forum. If the OP is interested he can type "Secured Loan vs Unsecured Loan" and will find a raft of information on the topic.

On your second point. If the loan is unsecured then by its nature it has no connection to the OPs mortgage or his new mortgage negotiations, except that it'll appear on his credit report as additional borrowing. The new mortgage provider will then make the decision whether the unsecured debt is excessive compared to income and base their mortgage decision accordingly, just as they would for any other outstanding loans or credit agreements. I would not advise anyone to convert an unsecured loan into a secured on by consolidation, for the reasons I have already mentioned. Which brings us nicely back to where we started from.

Thrugelmir

RenovationMan wrote: »

I disagree about the ease in which you think a creditor can convert an unsecured loan into a secured one, but I haven't the desire or energy to debate the point on an internet forum.

I never expressed any opinion on the ease. Just that the option is there for a lender. Pre-empting what a lender may or not do is subjective. However one should always be aware of what could happen. I've met too many people who thought that rules didn't apply to them. (Poacher and Game Keeper ).