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Getting a Secured Loan and then remortgage?
Looking for some advice here...and thinking out loud a bit.
My wife and I have recently jointly purchased a house (completed earlier this month),and since moving in, we have noticed alot more work needs doing than originally anticipated. These are things that were largely covered up by clever positioning of furniture so our homebuyers report didn't even pick them up (such as cracks in plaster in conservatory, etc) but also things like radiators needing replacing, kitchen units being rotten, doors not fitting properly so don't close, etc.
We don't currently have the finances to get this level of work done but are quite desperate to get it done because we're at the stage where every room in the house needs something doing so we can't unpack much.
Having looked at our finances, we think a secured loan is going to be the best option moving forward.
Our house was valued by the mortgage lender at £178,000 and our mortgage is £133,500, leaving £44,500 equity (the deposit we paid).
We currently have £12,000 of unsecured debt (credit cards, catalogs, etc) that is costing us about £575 per month.
We were thinking that if we got a secured loan for £17,000, that would still leave a good chunk of about 15% equity in the house and would enable us to pay for the work we need doing, then clear the majority of our unsecured debt. Therefore, our monthly payments would reduce to about £275 per month and our house would be worth a bit more because of the work we'll have had done.
We can then use the extra money each month to overpay the mortgage and then when our fixed period is up on our mortgage, we can remortgage and hopefully consolidate the loan into a new mortgage deal.
Does this sound like a sensible plan?
My wife and I have recently jointly purchased a house (completed earlier this month),and since moving in, we have noticed alot more work needs doing than originally anticipated. These are things that were largely covered up by clever positioning of furniture so our homebuyers report didn't even pick them up (such as cracks in plaster in conservatory, etc) but also things like radiators needing replacing, kitchen units being rotten, doors not fitting properly so don't close, etc.
We don't currently have the finances to get this level of work done but are quite desperate to get it done because we're at the stage where every room in the house needs something doing so we can't unpack much.
Having looked at our finances, we think a secured loan is going to be the best option moving forward.
Our house was valued by the mortgage lender at £178,000 and our mortgage is £133,500, leaving £44,500 equity (the deposit we paid).
We currently have £12,000 of unsecured debt (credit cards, catalogs, etc) that is costing us about £575 per month.
We were thinking that if we got a secured loan for £17,000, that would still leave a good chunk of about 15% equity in the house and would enable us to pay for the work we need doing, then clear the majority of our unsecured debt. Therefore, our monthly payments would reduce to about £275 per month and our house would be worth a bit more because of the work we'll have had done.
We can then use the extra money each month to overpay the mortgage and then when our fixed period is up on our mortgage, we can remortgage and hopefully consolidate the loan into a new mortgage deal.
Does this sound like a sensible plan?
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Comments
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p.s. I've had a quote from Nationwide for an unsecured loan and they quoted an APR of 24.4%.0
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What APRs are you paying on your existing £12k debts?
How long is the Nationwide loan over and can you afford repayments?
If you went with an unsecured loan such as nationwide would you still hope to consolidate it in to your mortgage at the end of the fixed deal?
How long is the fixed deal on your mortgage?
If you don't do the work yet and don't consolidate your existing debts how long will it take you to clear your existing unsecured debts?A smile enriches those who receive without making poorer those who giveor "It costs nowt to be nice"0 -
My wife and I have recently jointly purchased a house (completed earlier this month),
If you just completed on a mortgage, your credit rating is tinned for the next 6 months - banks wont give you the time of day, let alone a less than userous APR on anything bigger than a few hundred.and since moving in, we have noticed alot more work needs doing than originally anticipated. These are things that were largely covered up by clever positioning of furniture so our homebuyers report didn't even pick them up (such as cracks in plaster in conservatory, etc) but also things like radiators needing replacing, kitchen units being rotten, doors not fitting properly so don't close, etc.
Ok problem one - you went with a homebuyers report and not a survey didnt you. Take this as a lesson going forwards.
Second issue, nothing you have said sounds like it compromises the structure of the property, i.e, it is cosmetic rather than structural. Your house isnt going to fall down if you live with it for a year and save the money to do the work.We don't currently have the finances to get this level of work done but are quite desperate to get it done because we're at the stage where every room in the house needs something doing so we can't unpack much.
Unpack, get on with life. Do bits when and where you can. No one gets the house of their dreams right out of the gate, it takes time.Having looked at our finances, we think a secured loan is going to be the best option moving forward.
Why? Simply because you want the work done right now? Or because the house will fall down if you dont?Our house was valued by the mortgage lender at £178,000 and our mortgage is £133,500, leaving £44,500 equity (the deposit we paid).
So, you have a 75% LTV which puts you (very) just into the realms of half way decent rate on your mortgage. Anything more than this and they start to charge stupid amounts of interest. The point is, when you come to remortgage, if you LTV is more than 75%, you are unlikely to secure the best mortgage rates which will ultimately end up costing you tens of thousands of pounds more in interest than if you had stuck with the equity as it is.We currently have £12,000 of unsecured debt (credit cards, catalogs, etc) that is costing us about £575 per month.
Your very first priority should be paying those off. It isnt a question of if interest rates will rise, it is now a question of when, and if you think the banks wont be cashing in on that feeding frenzy, you are sadly mistaken. Where once you had loans going on at about 5%, you'll wake up and find them pushing 10% and more and those will be the very best rates you can get on.We were thinking that if we got a secured loan for £17,000,
Never turn unsecured debt into secured. Simple reason is, you can almost walk away from unsecured debt and other than a bit of hassle, there is little your lender can do to you. Secure those debts and you suddenly have something that is a whole lot more serious than it was.that would still leave a good chunk of about 15% equity in the house
It is not 'a good chunk', it is woefully inadequate. If your house goes down (and it still very much can and might), you'll be in negative equity for a start. Quite apart from that, when you come up to renegotiate your mortgage in a few years, you'll be forced to take the very dregs of the market offerings at the very worst rates available - all to get your kitchen fixed and pay off your unsecured debts...it makes no fiscal sense at all.and would enable us to pay for the work we need doing, then clear the majority of our unsecured debt. Therefore, our monthly payments would reduce to about £275 per month and our house would be worth a bit more because of the work we'll have had done.
It wont work. Consolidation loans rarely do. You'll just end up with less equity in your house and the same unsecured debt again. Pay off the unsecured debt first, then decided what to do with the money you have and pay for your house repairs directly - free and clear. At all cost, protect that equity - it is your ticket to good LTV rates in the future.We can then use the extra money each month to overpay the mortgage and then when our fixed period is up on our mortgage, we can remortgage and hopefully consolidate the loan into a new mortgage deal.
Dont.
NoDoes this sound like a sensible plan?Debt Free! Long road, but we did it
Meet my best friend : YNAB (you need a budget)
My other best friend is a filofax.
Do or do not, there is no try....Yoda.
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What APRs are you paying on your existing £12k debts?
How long is the Nationwide loan over and can you afford repayments?
If you went with an unsecured loan such as nationwide would you still hope to consolidate it in to your mortgage at the end of the fixed deal?
How long is the fixed deal on your mortgage?
If you don't do the work yet and don't consolidate your existing debts how long will it take you to clear your existing unsecured debts?
Thanks for your post. To answer your questions:
- Existing cards are all the likes of Vanquis, Cap1, then there's Very Catalogs and Argos Cards so all are 29%+
- The nationwide loan was over 7 years and was about £530 per month but there's nothing saying they would offer us the loan anyway.
- If we went with an unsecured loan, we would still be looking at consolidating it into the mortgage, yes.
- 3 years on our current fixed deal.
- It would probably take 5 years+ to pay off the existing debt if we didn't have the work done due to the high monthly payments.0 -
If the nationwide was a soft search quote then I believe other posters have said if the rate is above 21% that is almost always means a decline when you actually apply (and it is unlikely you would be able to borrow that much straight after moving house and given your existing debt level).- It would probably take 5 years+ to pay off the existing debt if we didn't have the work done due to the high monthly payments.
Are you sure it would take as long as that? £12k at 29% APR at £530 works out as about 33months.
Even if the average APR is 32% then it should still be no more than 36months.
In your position and having just taken on this major financial commitment I would stick with paying off the debts you have before you incur more, and do whatever cheap DIY you can on the house in the meantime and leave other things until you are in a better financial position.
E.g things like the doors not fitting should be a fairly easy DIY job to sand and re hang etc.A smile enriches those who receive without making poorer those who giveor "It costs nowt to be nice"0 -
Firstly, I would like to thank you FireWyrm for your detailed reply however I would say it felt somewhat like you were talking down to me which is not needed when I come on here looking for advice.If you just completed on a mortgage, your credit rating is tinned for the next 6 months - banks wont give you the time of day, let alone a less than userous APR on anything bigger than a few hundred.
Not strictly true. Halifax (who our mortgage is with) have not done a full credit search at all so doesn't show up on credit reports. In addition, since moving I have got a Nationwide FlexDirect account with a Credit Card with a £2800 limit on (with the aim of transferring some of the higher rate balances over).Ok problem one - you went with a homebuyers report and not a survey didnt you. Take this as a lesson going forwards.
Yes, I agree it was a mistake but the house is only 15 years old and even for a full survey, the surveyor wouldn't have moved the previous owners posessions.Second issue, nothing you have said sounds like it compromises the structure of the property, i.e, it is cosmetic rather than structural. Your house isnt going to fall down if you live with it for a year and save the money to do the work.
With the payments for the unsecured debt we currently have, we would not be able to save any money to do the work until the unsecured debt has gone.Unpack, get on with life. Do bits when and where you can. No one gets the house of their dreams right out of the gate, it takes time.
I'm not expecting a 'dream house' otherwise we wouldn't have bought the house we did but there's nothing wrong with wanting to find out what the cracks are in the conservatory and wanting a non-rotten kitchen.Why? Simply because you want the work done right now? Or because the house will fall down if you dont?
erm...because we want to put things in our kitchen cupboards without the cupboards being rotten, because we want to be able to shut the doors in the house, because we want to have heating in rooms that currently have radiators that need replacing?So, you have a 75% LTV which puts you (very) just into the realms of half way decent rate on your mortgage. Anything more than this and they start to charge stupid amounts of interest. The point is, when you come to remortgage, if you LTV is more than 75%, you are unlikely to secure the best mortgage rates which will ultimately end up costing you tens of thousands of pounds more in interest than if you had stuck with the equity as it is.
Our current mortgage rate is 2.69% so pretty good. The idea of doing home improvements now is to raise the value of the house a bit so when we come to remortgage, we will hopefully have made enough of a difference to increase the value to cover the loan as well within the 75% LTV.Never turn unsecured debt into secured. Simple reason is, you can almost walk away from unsecured debt and other than a bit of hassle, there is little your lender can do to you. Secure those debts and you suddenly have something that is a whole lot more serious than it was.
I hear what you're saying but a) I would not simply 'walk away' from an unsecured debt and even then, there have been cases where lenders have obtained charging orders on their customers houses so it's not as clean cut as you make it out to be.It wont work. Consolidation loans rarely do. You'll just end up with less equity in your house and the same unsecured debt again. Pay off the unsecured debt first, then decided what to do with the money you have and pay for your house repairs directly - free and clear. At all cost, protect that equity - it is your ticket to good LTV rates in the future.
I think you're unfairly generalising here. What's to say we will run up unsecured debt again? The unsecured debt has been mainly to buy essentials for our first home. Since then we have worked hard to pay cash for everything else we've needed. We will not need the unsecured finance once it's paid off and will be closing the accounts so to not be tempted.0 -
If the nationwide was a soft search quote then I believe other posters have said if the rate is above 21% that is almost always means a decline when you actually apply (and it is unlikely you would be able to borrow that much straight after moving house and given your existing debt level).
Thanks Tixy, yeah that was my feeling too. 20%+ is very high so one would assume that they don't want you to apply.
It was a pretty rough estimate based on the fact the minimum payments would reduce as the balances reduce but yes, if we kept the monthly payments the same it would be approx 3 years.Are you sure it would take as long as that? £12k at 29% APR at £530 works out as about 33months.
Even if the average APR is 32% then it should still be no more than 36months.
Thanks for your opinion. It's just hard because I'm absolutely rubbish at DIY (have tried before and failed every time) and things like the rotten cupboards in the kitchen can't be sorted out cheaply (if it was just the cupboard doors, I would take 'em off and hang curtains over them or something but it's the actual cupboards).In your position and having just taken on this major financial commitment I would stick with paying off the debts you have before you incur more, and do whatever cheap DIY you can on the house in the meantime and leave other things until you are in a better financial position.
I must also admit that a big part of the temptation is the extra £300 per month that we could overpay on our mortgage - obviously, this wouldn't be a 'required' payment so would give us some breathing space.0 -
since moving in, we have noticed alot more work needs doing than originally anticipated.our house would be worth a bit more because of the work we'll have had done.
These 2 statements don't mesh. You paid what the house was worth to you without realising the 'hidden' faults. Fixing them will not raise the value, it will just make is nicer to live in.
DIY does not have to be expensive if you are prepared to put the effort in and only pay professionals when you have to. Stay in and save your money by whiling away the evenings with sandpaper and a tin of paint and you will soon get on top of thingsI’m a Senior Forum Ambassador and I support the Forum Team on the Pensions, Annuities & Retirement Planning, Loans
& Credit Cards boards. If you need any help on these boards, do let me know. Please note that Ambassadors are not moderators. Any posts you spot in breach of the Forum Rules should be reported via the report button, or by emailing forumteam@moneysavingexpert.com.
All views are my own and not the official line of MoneySavingExpert.0 -
These 2 statements don't mesh. You paid what the house was worth to you without realising the 'hidden' faults. Fixing them will not raise the value, it will just make is nicer to live in.
What I mean is, we didn't realise things like the kitchen cupboards were rotten (but it was still a 15 year old kitchen) so a new shiny kitchen will increase the value of the house. I would also argue that fresh decor, etc (rather than tired 10 year+ old decor) would also increase the value somewhat.
Additionally, the mortgage valuation (which matched our offer) would have been based on the condition of the house, so if we improve the condition of the house, it will increase the value.0 -
a shiny new kitchen would increase the ease of sale of your house but you are not looking to sell as you just bought it. It will add little to the value.
Spending £2k doing up a house does not add £2k to the value of the house though - I would be very cautious if I were youI’m a Senior Forum Ambassador and I support the Forum Team on the Pensions, Annuities & Retirement Planning, Loans
& Credit Cards boards. If you need any help on these boards, do let me know. Please note that Ambassadors are not moderators. Any posts you spot in breach of the Forum Rules should be reported via the report button, or by emailing forumteam@moneysavingexpert.com.
All views are my own and not the official line of MoneySavingExpert.0
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