Refused remortgage after house renovation - advice please!

MichaelaLondon

Hi everyone, this is my first post and I hope you can help me... we are in quite a complicated mortgage / debt chicken and egg scenario.

My husband and I used to be in a very financially strong position - no debts whatsoever and a really good amount of equity in our old house, plus savings too.

We decided to move to a larger house, and fell in love with a listed property that was in need of complete renovation. When we bought it we took out a mortgage for more than we needed, so we effectively used some of the equity from the old house to pay for the renovations, and we also cashed in every penny of savings we had to put towards the work.

We have a really good (offset interest only 1.99%) mortgage rate that relies on us staying under a LTV of 65%, so the amount we could borrow was capped at that. We knew we would need more to complete the renovation, but after conversations with the mortgage company we were advised to do the work first, then have the house revalued, then remortgage. So we completed the work using the savings we had, and a combination of personal loans and credit cards - mostly 0% balance transfer ones, but we have ended up with balances on interest bearing "everyday" cards too.

We finally finished all the structural work and are starting to look at refinancing. Yesterday I called the mortgage company - and you guessed it - the refused to give us more mortgage money on the basis that our personal debt makes this look unaffordable. They have a limit of £40k, if you have more debt than this they will flat out refuse to do a debt consolidation mortgage, regardless of how the debt was raised and regardless of the fact this is what they advised us to do in the first place (i have no proof, it was over phone conversations).

So, now we are left with a very cheap mortgage and a mountain of relatively expensive personal debt - around £100k in total. My husband and I are lucky in that we have well paid jobs, and we can afford to service this debt and over time reduce the balance down, but I am cringing at the idea of paying 16% or so on the few thousand on interest bearing cards, and the idea that by the time we clear off those some of our 0% deals will be coming to an end so we will be back to the situation where our payments are mostly servicing the interest and not making huge inroads to the capital.

We have had an estate agent value the house, and even if we assume the "real" value is 10% less than the agents value we would have a LTV of less than 50% even if we were given a remortgage for the full amount of our debt.

So, we are doing all the sensible things - looking at cutting our expenditure, thinking about taking in a lodger, and paying off the worst interest rate card first. Neither of us has ever missed a payment or been late with one, we don't have any CCJs etc and we are generally very sensible with money - it's not like we're living beyond our means and we were very careful when taking on this debt that we could afford the monthly payments even if we didn't manage to remortgage. Which was necessary planning as it turns out.

So, I have some questions....

Are there any mortgage companies who will consider the reasons why the debt was incurred rather than simply the size of it?

At what level of debt should we try again to remortgage - is it necessary for us to have killed off £60k of debt and be down to the £40k limit our lender has, or do other lenders have different limits? Or perhaps it's down to affordability?

Is it more acceptable to lenders if we have loans instead of credit cards? I'm loathe to pay off the 0% deals before making additional payments on the 7% loan but if it speeds up the time we can move the whole debt onto 2% or 3% mortgage it would be better to do that.

Are any mortgage companies good at assessing personal debt on the basis that the mortgage is used to repay that debt? I think most of our problem is that the assessment process assumes we want to borrow more money in total, but actually we want to refinance the debt we have and swap it between lenders. All our credit history shows we do not use loans and credit cards to live on, it is clear we had zero balances until the renovation started and have suddenly built up a lot, and now have a stable and slowly reducing balance.

Any other advice, other than don't fall in love with a renovation project again?

Thanks very much, hope someone can give me some advice. We can cope with the current situation if we HAVE to, but if I can reduce our interest costs we'll be able to repay the capital much faster.

Michaela

Dave_Ham

Many lenders do dislike unsecured debt and do not wait for an explanation.


That said, have a chat with a sensible mortgage broker as I would expect this is still achievable on decent terms.


Good luck

Leon_W

You don't give any figures, income or property value etc but it does sound like you are with a high street lender with a computer says no attitude. Unfortunately that is the way they are and I can't see you moving forward with the lender you're with.


That said, there are lenders with a more flexible approach that will underwrite it manually. You say you're on a good rate at the moment, you are, but it's not any good if the unsecured debts are costing so much more ? You also say that it's interest only which can be a problem.


There are lenders for this if you've plenty of equity and salaries that will cover a mortgage although you may have to switch to a repayment mortgage. Without knowing all the details I can't really give an opinion but it is certainly worth having a word with a broker, you don't have anything to lose by doing so and then you can weigh up all your options.


Regards

MichaelaLondon

Thank you both - I'll take a look into meeting a mortgage broker.

"Computer says no" attitude is exactly right. I have a feeling that if I actually spoke to an underwriter rather than the call centre people then I might get further, but as you say it's probably not likely with a large retail bank as they're set up for volume of people and strict guidelines rather than assessing individual cases. It is counter intuative, but if they lend us more they will get their capital back sooner, at the moment they're not going to see a penny for at least 5 years because we need to pay off the other debt first.

The interest only offset is a benefit to us as my husband has his own business so his income is lumpy - he draws a fixed salary every month which we base our budget on, and then he could get anything between £5 to £25k extra each year depending on how the business does, the VAT returns and the income tax cycle. So we prefer to budget only for the interest on our regular income, and pay down the capital when he gets bonuses. I'll have a look at repayment mortgages as an option though.

Thanks for your help - we could definitely stand to be on a worse rate for the mortgage as long as the credit cards were paid off.

Well, like we said when we bought the house - the worst that can happen is that we'll have to sell up and downsize - the cheaper the debt and the faster we pay it off the less likely that is to happen. If interest rates stay nice and low that would be great too..... oh and maybe a huge pay rise as well....