Secured loan to repay debt

rorysdad

I am posting this on behalf of a friend who has inherited a property with no mortgage valued at around £100,000.


He has a very bad credit record and owes around £20K in unsecured debt.


He is self-employed with a variable income.


He is looking at the option of borrowing against the house (secured loan). Will that be possible as he is self employed (ie: he has tried without success to get unsecured loans but his credit record and self-employment has resulted in rejections).


Do credit ratings and self employment come into the equation if he goes for a secured loan?


Anyone recommend a secured loan company?


Would his Bank be an option or will they reject even a secured loan because of his credit record and self-employment?


Also, is it case that if he defaults on paying a secured loan that the house can be taken from him to repay any debt owed?


RD

YorkshireBoy

rorysdad wrote: »

Do credit ratings and self employment come into the equation if he goes for a secured loan?

Yes, because no lender wants the hassle or cost of litigation.

Would his Bank be an option or will they reject even a secured loan because of his credit record and self-employment?

If he has a poor credit rating with them, rather than in general, then no chance I would have thought. However, if he's managed his account(s) there well, maybe it's possible.

Also, is it case that if he defaults on paying a secured loan that the house can be taken from him to repay any debt owed?

Of course!...but after the aforementioned litigation (which they will want to avoid, hence the credit scoring at the outset).

longtermplanner

Has he thought through his other options?

He is presumably saving money now by not paying any rent, so should have more cash to throw at his debts each month.

If there is a spare room, he could rent that out. Up to £4250 a year would be tax free, so this too could be paid off his unsecured debts.

Apples2

Our sell it, pay off the 20k debt, put 80k in the bank and live happily ever after

jonesMUFCforever

Apples2 wrote: »

Our sell it, pay off the 20k debt, put 80k in the bank and live happily ever after

.........Or just rent the property out for a few years and use the money to pay off the debts.

dancingfairy

Your friend should get free debt advice from someone like National Debtline. Stepchange or their local CAB.
For obvious reasons securing it on the house is a bad idea - he could loose the house! A dmp might be a better option but he should chat to a debt charity.
df

Thrugelmir

Apples2 wrote: »

Our sell it, pay off the 20k debt, put 80k in the bank and live happily ever after

Gets my vote for the way forward.

Sparx

Apples2 wrote: »

Our sell it, pay off the 20k debt, put 80k in the bank and live happily ever after

Thrugelmir wrote: »

Gets my vote for the way forward.

+2 to this guy's sensible suggestion..

jamesd

If he can live in it, he'll save his own mortgage or rent costs. If he lets it out he gets income. Either means he'll be able to make faster progress towards getting rid of the debts.

While a secured lender can repossess the house, he'd still get any money left over. The sale prices tend to be lower so he'd lose out a bit but he doesn't lose all of the value of the house, just the part that's debt.

He's got a nice asset in the house now so that should provide a lot of help one way or another.

rorysdad

He has a partner and 3 year old child so selling the home is not an option.