Consolidate debt with mortgage?

AshCash

Hi there, This is my first post, but have been reading here for many years.

My wife recently completed three years of 'self-funded' study. During that time we went into around £12k of debt per year (£35k total). The debt is spread across an unsecured loan and a couple of credit cards on low APR for the life of the balance. Most of the debt is in my name.

We now have a combined income of around £60-70k per annum. I'm both employed and self employed, which is why there is a range. We both have a solid credit history, having never missed payments - but I can tell that, due to the level of debt I am in, I am not exactly a sure bet in the eyes of lenders at the moment.

We have a mortgage on a small house, but we live in a fairly expensive part of the country and as our jobs are quite transferable we are considering selling our home and moving somewhere where house prices are cheaper to wipe out a significant portion of this debt. Our house is worth somewhere in the region of £185k (according to three different estate agents). We bought it at £150k, and have a mortgage of around £120k. The thought is that if we buy a house for 150 further north, that should help to us press reset on our financial situation.

At the moment, however, I'm concerned that our mortgage provider (Natwest) will say no to us porting our mortgage, due to our level of debt and it's corresponding outgoings (somewhere in the region of £900 per month). We bought before the new lending criteria came in and I'm not certain we will meet the requirements now.

I have enough work in the pipeline to pay off around 10k of debt in the next six months, which is roughly the timeframe we are looking at to sell and move, so lets call it £25k of debt total.

So my question really comes down to this. What will paint us in the most favourable light in the eyes of our mortgage provider when it comes time to move?

As I see it, we have three options:

Stay the course, with the debt in its existing format and hope that the mortgage provider sees that by granting us a port to downsize, we will wipe out most of our debt, thus improving the security of their investment.

Remortgage our existing home, borrowing enough to pay off the unsecured debt. This will bring down our monthly outgoings by a substantial amount. When we then sold the house, we would then look to pay £25k off the mortgage. This would involve remortgaging our existing deal and so there would probably be a hefty fee involved. This seems like an ideal option to me, as not only would it free up our finances in the short term, allowing us to save, but it would put a green tick in the income vs outgoings box when it came time to port. But if we don't meet the new lending criteria to port our mortgage, I don't see how we would be able to borrow more. What are the odds of a mortgage provider remortgaging for debt consolidation purposes? I assume we will need to pay for their surveyor to come and value to property to start?

Take out a secured loan against the equity in the house, again significantly bringing down our monthly outgoings. This seemed like a good choice at first, until I read about the fees involved with setting it up and settling early - and as we'd be looking to settle within a year, I think this is a non-starter.

I know this all comes down to what the mortgage provider says. I've set up an appointment to speak to them, but before I do, I'd like advice from an unbiased perspective on what our options are and what our odds are of being granted a port/remortgage

Sorry for the long winded question and many many thanks in advance.

Ash

(I wasn't sure which category to put this in - mods, feel free to move if appropriate)

foxy-stoat

Just keep paying down the debt, highest interest rates first. Your lender will see your payments on the credit search so if you consistently over pay it will look miles better than taking on more debt to consolidate to reduce your outgoings only to save the difference and taking longer to clear the debts.

It would probably be a good idea to get as much of the £25K you will be left with when you sell on 0% interest cards.

If your current mortgage is £120K and your buying the next house at £150K, your LTV will be 80% so a strong position going forward. It will be a good plan to clear the rest of the debt with the difference in house prices, if you have any change then you can start your savings again or reduce your mortgage.

AshCash

Thanks. My biggest concern is that Natwest will block our request to port our mortgage due to the fact that so much of our outgoings are tied up in debt. Logic suggests that they would jump at the chance. We pay off our other debts, LTV improves and we become an all round safer investment for them. But experience tells me that their algorithms won't take into account future affordability, only past affordability!

getmore4less

Review your outgoings with £60k+ there should be loads to hammer the debts.

What rate are the debts?

getmore4less

You don't wipe out debts by sticking them on a mortgage you just move them onto a new rate.

You can probably get low/zero rate CC if all you want to do is move them.

AshCash

getmore4less wrote: »

Review your outgoings with £60k+ there should be loads to hammer the debts.

What rate are the debts?

10k 'Further Study Loan' which was 0% APR during the three years and has now reverted to 9.9%. The remaining 25k is on 6.9% for the life of the balance.

getmore4less wrote: »

You don't wipe out debts by sticking them on a mortgage you just move them onto a new rate.

You can probably get low/zero rate CC if all you want to do is move them.

I appreciate it not clearing the debts, but it is drastically increasing their affordability. Not including my self-employed work, I basically owe my year's salary in unsecured debt, making it very difficult to apply for new credit/better rates at the moment.

Debtslayer

Think very carefully about changing unsecured debt into secured debt; even if at first it seems lik a good idea because of lower repayments it very rarely is. I would say there's quite a few people who've done this only then to get into debt again
What happens if you buy a house for 150k but it needs work doing to it?
Do you really want to move anyway?
What if you hate the new area, plus it will probably mean new jobs etc
There's also all the costs of selling and buying to consider
If I were you I would just concentrate on paying off the debts, you say you could pay off quite a chunk in 6 months so your payments will considerably reduce anyway if you do this
Post on the Debtfree wannabe board and you'll get loads of help at reducing costs etc

AshCash

Yes, we really want to move - we hate where we live

If we buy a house for 150k, we will have an extra grand a month to do it up.

And it is precisely because of the cost of selling and buying that secured debt sounds so attractive as a short term solution (it frees up capital now to pay those costs, without running further into debt, and when we sell, we pay off what we borrowed)

Either way, we want to move in six months (sorry I should have made that clear at the start) - so this isn't just about 'wanning' to be debt free (we made an executive decision to be in this debt), it is about organising our finances as best as possible to ensure Natwest gives us the green light on porting our mortgage in six months. Judging by my last couple of credit-based applications, I'm doubtful they will say yes at the moment.

Thrugelmir

AshCash wrote: »

I appreciate it not clearing the debts, but it is drastically increasing their affordability. Not including my self-employed work, I basically owe my year's salary in unsecured debt, making it very difficult to apply for new credit/better rates at the moment.

Starting point for lenders is that debt consolidation isn't there primary target market. The more new good quality borrowers they can lend to the more they spread the risk and reduce the issue of default. Mortgage lending is done from a birds eye view not a micro management of single applications. Risk management is based on statistical analysis. Your circumstances will group with others that are similar.

The largest issue that you if you move is work. Lenders will wish to see you in secure employment. So be prepared for an interim period of renting if that's the route you decide to take.

AshCash

Thanks. Good advice. My wife works for the NHS and I wouldn't change jobs as I mostly work from home, so we would both be in consistent employment before and after a move.

fewcloudy

Follow the advice on this website, about moving as much of your CC debt onto 0% CC's ASAP, as that would give you more cash to get the debt down quicker. Stoozing it's called, IIRC.

fc