Taking on new debt - order of borrowing

clairep101

Hi,

I am trying to find some advice on raising funds for a house deposit and new business venture by increasing my personal debt. The internet is full of advice on how to get out of debt, but there is very little on how to borrow more!

Before you think I have taken leave of my senses, the situation is as follows:

I currently own two houses, both of which are rented out (not in the area I want to live any more). The combined value is £380,000 and I have mortgages worth £203k, so the simple solution would be to remortgage to release equity and that would be the end of it. Unfortunately, the smaller of the 2 houses (valued by an estate agent at £85k), only achieved a mortgage valuation of £70k, and I already have a 75% mortgage on that one. I have more equity in the other one. However, I am currently paying 1.25% interest on the mortgage and the best price I've been given for a new mortgage is 3.8% (it's an HMO) - so, I would be CRAZY to abandon my current mortgage which still has 6 years to run. I would prefer to try to raise the funds some other way.

I have credit card debt of £25k (accrued through house renovation) - and I have an excellent credit score and about £20k of 'unused credit' on those cards. I am good at juggling the various debts so that I only pay about 3.5% to 4% on those cards. I am employed full time with a salary around £40k.

I am trying to raise about £45-£50k in total, and believe I could do this as follows: use the remaining £20k of available credit on c.cards, take out an personal loan of £15k, and a business loan of £10k.

However, if I go ahead with that before trying to buy a house, I'll never be accepted for a mortgage as my levels of personal debt will be too high.

Therefore, I am hoping to borrow from family for a short time, and then use these various borrowing options to pay them back. (Though they might not have quite enough to cover what I need).

With me so far?

So, the question is - how should I plan this additional borrowing - and given that some loan providers are more forgiving of other debt than others, what order should I do it in?

Currently, my plan looks something like this.....

Borrow £10k from family to bring C.C debt to £15k (more attractive to mortgage providers if my personal debt is lower).

Then borrow a further £35k from family for house deposit.

Once house sale has gone through.....

Take out a personal loan for £15k (if poss) to pay family back first chunk.

Then take a £10k business loan to support business venture.

Then gradually increase C.card debt by £30k as balance transfers allow. Get one more credit card if necessary. Pay family back gradually as this happens.

Still with me?

Does this look like a reasonable plan? And have I got this in the right order?

Is it better to do personal loan before business loan or the other way around? (who looks more favourably upon the other?)

Could I do the business loan before mortgage, or would a lender see this in the same light as personal debt and be less willing to lend?

Am I allowed to use business loan to pay off other debts, and then use credit cards to cover business spend?

Can anyone suggest any better ways of doing it? Are there any types of lending that don't reflect on credit score (apart from borrowing from family).

Can anyone recommend where I could get further advice on such matters? A small business advisor maybe? As I've said, I've found plenty of people happy to advise on getting out of debt - but not many who are keen to advise on getting into it (unless they're actually offering a product).

Phew! I think that covers it.

Any and all advice gratefully received.

Thanks!

[Deleted User]

Lots of potential flaws.

Which lenders are you going with who will accept the borrowed deposit?

When_the_going_gets_tough

Your solicitor will need evidence for the source of your deposit. Anyone who has lent you the money will be required to sign to say that it is a gift. It would be mortgage fraud to then turn the gift into a loan.

Herzlos

You're also assuming that you'll be able to get 2 large loans after taking out another mortgage, which may not be as easy as you think.

It doesn't look sustainable; ignoring the mortgages you're wanting to borrow about 150% of your on-paper salary, when the advice is generally to keep it below 50%.

foxy-stoat

I stopped reading at

"With me so far"

Your better off renting in the area you want to live and use the £20K on your credit cards for your business venture....if it works then you can safe for your deposit, if it doesnt you wont end up owing your family thousands if they agree to lend you the money.

Or sell one of your houses to release capital.

clairep101

I don't know about lenders yet - still working out how to go about things!
Is borrowing a house deposit from family not allowed then?
What are the other potential flaws you mention?
Thanks Very much.

BrassicWoman

Sell the house with the equity.

Then you have your own skin in the game, and become more attractive to lenders.

glosoli

You may well be declined credit once the figures become too high, and the house of cards could come falling down...

x_raphael_xx

clairep101 wrote: »

Is borrowing a house deposit from family not allowed then?

As explained by our mortgage adviser when we said we were borrowing money from family to help towards our deposit...
The money should be a gift, rather than a loan, as it adds to any debt you may be responsible for (credit cards etc)
If you have too many loans to pay back, brokers may refuse the mortgage... i.e. if you owe too many people money, will you be able to afford the mortgage repayments on top?

Giftees need to sign a document saying that it is a gift and not a loan.

DCFC79

Sell 1 of the houses to buy another house and set up the business venture, using your own money for the business, if the business doesnt work you won't have a business loan going unpaid.

clairep101

Herzlos wrote: »

You're also assuming that you'll be able to get 2 large loans after taking out another mortgage, which may not be as easy as you think.

It doesn't look sustainable; ignoring the mortgages you're wanting to borrow about 150% of your on-paper salary, when the advice is generally to keep it below 50%.

Yes – but if I was proposing to remortgage one of the houses in order to release equity, this would seem quite normal and not as risky as you suggest – because the payments are covered by rental income, even though this option would be about £3500 per year more expensive than borrowing a smaller amount from elsewhere to top up the mortgage.

It feels like a classic version of catch 22. As Joseph Heller might have put it….

There is only one catch and that is Catch-22, which specifies that I can only borrow money to buy a home if I can afford the repayments. If I take out additional loans/credit, I can afford the repayments, but as soon as I do that I am “unable to afford it.” If I remortgage my existing house, I’m deemed “able to afford it” but I can no longer afford it. I can afford the repayments if I use the cheaper credit, but not if I remortgage, but I am not allowed to take the cheaper credit, because I “cannot afford it.”

Ha ha ha!

One serious question though – are there any kinds of advisor who would advise professionally and impartially on this kind of thing?