Re-mortgage Advise Required - Large Unsecured Debt

helpneeded85

Hi, i've been a longtime lurker on these boards and got much advise over the years but finally have a question as I have managed to get myself into abit of a hole with an upcoming remortgage...

Current situation
£53,000 wage (just me) with minimum outgoings i.e no dependents, company car, etc
House Value - Approx £240,000 (based on HSBC online valuation)
Current Mortgage - £148,000
Approx LTV - 61.5% (Approx £93,000 in equity)
My fixed rate ends (2.19%) on 30th April 2017

The issue...
Due to getting out of a long term relationship 2 years ago and having to relocate and start from scratch I have incurred a lot of unsecured debt due to living excessively (fist year) and having to kit out a new house etc.

Thankfully this is all now under control now and reducing by approximately £1000 per month. My credit report has no blemishes other than the high level of unsecured debts etc.

In total I have the following debt:

Loans
HSBC Loan £14,375.72 (4 years left)
Sofa £2,006.00 (3 years left)(interest free)

Credit Cards
HSBC (interest free till June 2018) £7,162.89
MBNA (interest free till 5th Feb 2018) £5,091.80
Tesco (interest free Feb 2018) £3,950.00
Barclays (interest free Dec 2017) £14,478.05
Santander (interest free Aug 2017) £4,410.00
Halifax (Not interest free) £6,265.61

Total Unsecured Debt £57,740.07 (reducing by £1000 per month)

So i have approximately £35,000 in positive balance tied up in the house today.

The plan... I should be coming into an inheritance of approximately £25,000 in the next few months and plan to pay it all off my debt (those paying interest of coming to an interest free end soonest) leaving a total of £32,000 of unsecured debt (16k credit cards and 16k loans).

The question is i would like to remortgage and release some equity to fully payoff my debt.

I have played with a few calculators and know on my wage I could easily have a mortgage of 4.5 times my salary with no debt. Would I be able to borrow £192,000 against a house value of £240,000 (80%LTV) with 16k credit cards and 16k loans debt. It seems possible using a HSBC calculator...

I plan on staying with HSBC if possible and £20k of the 32k is already with them as unsecured debt so don't see why they wouldn't transfer it to secure it to the house and they would be able to guarantee that I paid it off?

Sorry for the length, just wanted some thoughts before I look to arrange a sit down with a HSBC mortgage adviser...

Worst case I will continue as is and pay down my debt by £1000 of the capital per month for another year and look at the situation again then...

Thanks in advance!

amnblog

HSBC might do it, don't be surprised if they say no, nor worry about it because another lender will so speak to a broker.

Securing unsecured debt carries risks (which you are probably aware of but which I mention anyway) including:

If you later struggle to pay the loans your home is at risk in a way it would not be were the debt unsecured.

You are taking want should be short term lending and converting it to long term lending. If you do not pay it off quickly you may eventually incur more interest that you would on the debt when it was unsecured.

helpneeded85

Thanks for the quick reply amnblog!

I was thinking about seeking advise from a broker as I did use one for my first house purchase.

Would you suggest I sit down with HSBC first and see what they say or would you suggest a broker on the first instance to avoid the wasted credit check?

Also when would be the best time to approach one (4 months until my remortgage date) and is there anything else I would need for the meeting other than I have already provided?

I am fully aware of the risk about transferring from unsecured to secured but aware that in the next year or so a lot of the credit card debt will start incurring interest and want it fixed before this happens and this is unfortunately the only way.

I would then use the £800 spare each month to overpay the mortgage as I have always been a supported of this. Annoyingly if I have stayed with my ex I would have been mortgage free 6 months ago as houses were much cheaper where I was originally from and we had a high combined wage...

Thanks again and any other advise would be welcomed.

Mogley

I'm not sure how affordability will look and whether it would be possible to increase your mortgage to consolidate the remaining debt. Others may comment on this.
I have a suggestion where you don't increase your mortgage.
Use £20k of inheritance to pay off the HSBC loan (interest rate?) and the Halifax credit card first.
Use the remaining £5k to pay off Santander C/C + part of Barclays.
The remaining debt you have looks like it will be mostly paid off by the time the 0% interest rate ends using your £1000/month. Anything left on the remaining credit card(s) at the end of the 0% period could be transferred to another 0% card and paid off within a few months.
You then keep the equity on the house and avoid consolidating debt. In April, you will probably have more chance of re-mortgaging £148k at 61% LTV than £192k at 80% LTV.

JimmyTheWig

amnblog wrote: »

If you do not pay it off quickly you may eventually incur more interest that you would on the debt when it was unsecured.

Given that a fair chunk of the debt is at 0%, I'd say moving it onto the mortgage is pretty certain to cost more.

OP, what I would do is use the inheritance to pay off the Halifax card, HSBC loan and Santander card.
By this time next year things should be looking better in terms of amount of debt, so the chances are you could transfer the Barclays debt onto a new card at 0%.
That then gives you the opportunityto pay off the rest before they start attracting interest.

[Cross-posted with Mogley]

helpneeded85

Thanks Mogley,

I did think about snowballing the debt as you suggested and haven't thrown that option out.

The HSBC loan is at 3.7% I think and the Halifax credit card is around 18%.

I've looked at switching my rate with HSBC and it looks like i could do this without a credit check? in April...

helpneeded85

Thanks also Jimmy.

I do agree this option looks likely to cost less. My only concern is that using the £1000 a month I use to pay down my unsecured debt now doesn't leave me much wriggle room if something was to go wrong...

I know the same can be said about mortgage payments as my house would be at risk but looking at the sums to increase the mortgage would only increase my mortgage by £200 per month (same mortgage term) leaving me £800 to play with for making over payments that can be flexed if required.

I know the mortgage will mean paying more in the long run but i'm just trying to way up the risk vs reward option for the sake of a few £1000 (not very money saving i know...)

But open to your opinions so keep them coming thanks.

Mogley

helpneeded85 wrote: »

I know the same can be said about mortgage payments as my house would be at risk but looking at the sums to increase the mortgage would only increase my mortgage by £200 per month (same mortgage term) leaving me £800 to play with for making over payments that can be flexed if required.

The credit card payments can be flexed if required as well. This is at 0% interest. I would say you would have a good chance of a balance transfer at 0% with zero fee if you still have credit card debt to snowball in June 2018 (assuming 0% balance transfer cards are still available).

I cleared credit card debt at the beginning of this year and have continued saving the money I used to pay off the credit cards. I didn't increase my mortgage and hence I now have the options of overpaying the mortgage or saving, without the additional regular monthly mortgage repayment amount !! This has given me a huge sense of satisfaction.

helpneeded85

I see what your saying. By paying off the HSBC Loan, Santander and Halifax Credit cards i will free up about £450 per month of the £1208 I pay today per month (of which about £120 is interest).

I can then use this to overpay or offer myself a safety net...

Mogley

What I'm essentially trying to say is if you have £1000 every month you can allocate to paying off unsecured debt:
- Pay off all your unsecured debt as quickly as possible with highest interest debt first to go.
- Re-mortgage in April 2017 for £148k @ 62% LTV to take advantage of low interest rate at good LTV.
- Continue to pay off your unsecured debt using whatever money you can afford to do so.
- If in one month your boiler breaks down and costs you £500 to repair, pay £500 less of your debt that month.
- By my estimation your debt should be paid off by Mar 2019 (all being well and you remain disciplined).
- Only then look to overpay the mortgage or put your money into savings.
This is what worked for me.

JimmyTheWig

Mogley wrote: »

I would say you would have a good chance of a balance transfer at 0% with zero fee if you still have credit card debt to snowball in June 2018 (assuming 0% balance transfer cards are still available).

My calculations show this will be needed in December 2017, but I agree with the gist of what you are saying.