Trying to mortgage whilst on benefits against an owned home to repay card debt

newmortgageseeker

My first post here and firstly sorry for the length of this message, but I have tried to include as much useful and relevant information as possible.

We are looking for advice from anyone that has first-hand knowledge of mortgage borrowing on benefits with no formal work earned income.

Headline figures:

Professional couple circa late 30’s, one has suddenly developed a serious long term disability; the other has left work (for now) to be a full-time carer. No dependants.

House is owned outright, it was paid for with hard worked earnings over the years, with no borrowing or charges currently or ever against it. Property is well maintained and value today is circa £400k

Regular and stable income from various benefits awarded, is in the region of £1400 per month, untaxed.

The total of all outgoings not servicing borrowing, that would remain after a successful mortgage i.e. food, transport, household bills would be £650 per month.

For genuine reasons, that are not within the scope of discussion in this thread, We have current credit card borrowing of just over £30K with about 5 big name lenders.

This debt today is all held on 0% deals that will end during this year. There will almost certainly be no scope to move the deals about at the end of the preferential 0% rates.

Repayments for this card debt today are around £700 per month due to the minimum monthly payments for some lenders being nearly 3%.

When the cards fall back onto their SVR, this monthly payment could potentially rise to £1200 per month by the year end with added interest component, this would leave us in a desperate situation.

All minimum card repayments have always been made in full before the due date and we are not aware of any adverse credit history or any difficulty in borrowing previously, whilst in paid employ.

We have no other borrowing, such as loans or car finance and no appreciable savings are left that could be used to discharge any of this debt.

We are hoping to move all of the unsecured credit card debt onto a mortgage secured against the property.

LTV would be less than 10%. The house would certainly satisfy any application lending survey.

With £1400 coming in each month and £650 servicing everything other than the borrowing, we would have circa £750 potentially left available for a mortgage payment.

I might expect for a mortgage of just over £30k on a 20-25 year term that repayments could be in the region of £150 per month at the current advertised rates. This would leave us with £600 per month to either overpay or guard against unforeseen expenses and rate rises as each month dictated.

So my question is, I know mortgaging on benefits is likely to be a sensitive and emotional topic however, I believe I can demonstrate real affordability and the lender can secure against a high-value asset so their exposure to risk should be low.

Are there are any actual lenders out there that would be receptive to an application?

Would a standard application process be able to demonstrate the intent that with £30K+ sat on cards, the mortgage would discharge these, so they would disappear on a successful application and not in themselves damage the mortgage affordability?
We would be happy to make an undertaking to pay any mortgage award straight to the existing card lenders directly, and or close the card accounts there and then, so that no further borrowing could be made.

I had considered approaching each of these existing card lender banks directly as in effect they could shift high-risk unsecured borrowing onto secured, however, I have been warned that some of the bigger high street lenders might potentially be much more rigid in their approval criteria, and I am trying to avoid a trial and error approach, which could in effect destroy my credit rating.

Helpful comments would be really appreciated, but please no quick judgements on the rights and wrongs of receiving benefits and amassing the credit card debt as there are much more extenuating circumstances from the past, that are not easily explained here.

Many thanks to all if you made it to the end!

ACG

Going to the lenders you have a credit card with, although in theory sounds common sense in practice it is not that simple. You are going from unsecured to secured lending and so if you default you potentially risk losing your home.

It will come down to the benefits your receive and whether or not they will be paid forever more or are subject to regular reviews. It is not impossible, but it will not be for every lender and like I say a lot on here, the devil really is in the detail.

It would probably be worthwhile speaking with a Mortgage Broker as they can sit down, go through your paperwork and hopefully match it up with a lender.

csgohan4

Stepchange who are a charity for debt maybe be able to advise or Citizens advice bureau may also be an option.

newmortgageseeker

Hello ACG,

Thank you very much for taking the trouble to reply, it is appreciated.

We are mindful that approaching one of the existing card lender banks would in effect also mean them taking on-board perhaps three times their existing level of lending as they pay out the other current card providers, albeit secured now against property.

We have briefly chatted to one of the banks and they are receptive to having a go (in branch), but I have concerns in my own mind that as soon as the application hits the underwriters elsewhere, it will instantly trigger a fail due to inflexibility in the process over something like perhaps no earned income.

One of the existing benefit awards is granted until at least 2021 before the next review although as you quite rightly say I would presume that this situation is not going to be comfortable for every or probably most lenders.

Our feeling is that even trying to mortgage with perhaps a £50K job with a good company today, situations can still occur where a month later you are redundant or have to leave work for other unforeseen reasons as we have seen.

We are comfortable with all of the risks around securing the debt against our home. Thoughts would be to aim to overpay each month as funds allowed.

In an absolute worst case scenario we would perhaps have family that could step in to assist with payments or help, but the aim with the mortgage was to try and support ourselves using what is very gratefully coming in, without having to burden family or relatives. Naturally finding £150 per month is going to be a lot more sustainable than finding five of maybe up to eight times that amount to service the present card debt.

Our thoughts were certainly warming towards a specialist broker, but given the slightly unusual circumstances around any application, we were thinking that it could be quite unlikely to chance upon one that had seen an application made or approved under these reasonably unusual circumstances.

Kind regards

newmortgageseeker

Thank you, csgohan4

I will certainly do a bit of research around Stepchange.

Kind regards

newmortgageseeker

Sorry to bump my own thread, but we wondered if there might be a broker or customer that has first hand and recent experience of any lender successfully considering benefits only income applicants?

We are interested to hear of success or perhaps even failure, particularly a positive steer towards any company found to be receptive.

Kind regards

Iwillbedebtfree

I can't advise on the likelihood of being accepted whilst on benefit income, hopefully someone will be along soon who can advise you, but I wanted to suggest something which may be more appropriate for you.
If I understand right, you are trying to reduce your monthly outlay on debt repayments from c£700 /£1200 to something more affordable once the 0% offers end and would like to do this by remortgaging the house you currently own outright.

My advice would be please do not do it, exchanging an unsecured debt for a secured debt puts you in a far more vulnerable position should your financial position change.

I recommend you repost on the debt free wannabe board as there are many different ways of tackling your situation.

Have you thought about a debt management plan (DMP)?
This involves defaulting but then your income and expenditure to calculate what you can afford to pay. Interest is often frozen for the duration and you have the option to increase/decrease payments if your income changes. Stepchange can tell you if it's a suitable option for you.

Good luck, hope you find something that works for you

newmortgageseeker

Thank you Iwillbedebtfree

Yes, I think you are spot on, basically £30K+ on cards at 0% have minimum monthly repayments of £700 today, which we can just manage, but as the 0% deals all expire one by one this year, the added interest component will push the repayments up gradually towards a huge figure circa £1200.

So as we only have £750 a month left over after outgoings to service the debt there is not much comfort.

I think the Debt management plan is something that we might effectively be forced into if we were unable to mortgage, prior to the 0% rates ending as effectively within a year we would find ourselves with a £450 monthly shortfall on funds to re-pay them.

Our first option was always to try to preserve our credit rating and integrity with the lenders and consolidate the lot onto a mortgage. We don't have any particular concerns about the risks in doing this (maybe we should?) as we genuinely feel that no matter what happened with future interest rate rises or with changes to our incomings, their payments could still be met.

Considering a £30K mortgage, even if interest rates went berserk and rose overnight by an extra 10%, we would still only then need to find less than a half of what we are managing to pay out today.

I think what is becoming very obvious, is that even with a reasonably small amount in question on the grand scheme of things, with a very low ltv. Most lenders are likely to be cautious about the reliability of benefits income, but realistically, are we talking about ALL lenders?

sammyjammy

I'm sorry for the situation you find yourselves in, it must be hard. Feel free not to answer but is this a long term situation? If it is then I would suggest that defaulting on these debts and taking on a debt management plan would be the way to go, the trashing of the credit record doesn't have to be a permanent state of affairs and it sounds like you need to be able to stop worrying about money and concentrate on each other.

newmortgageseeker

Hello sammyjammy,

Thank you for your kind words, which are appreciated.

Basically we were both in good health and of previous good financial standing.

A few years ago there was an unexpected medical emergency that changed our lives forever in less than a second.

At the time it was impossible to predict how long standing the situation might be and for a while we managed using savings etc without seeking financial support or aid. We had to fund some substantial adaptations to be able to stay in our home and travel for private tests, advice and diagnosis.

Basically a few years later and today, it is unlikely that the situation will improve overnight. So little is known that it could improve, worsen or stay the same.

Disability awards have been assessed at home and granted for at least four years, which I believe is the maximum period allowed, at which point it would then be reviewed again subject to current rules and criteria in place at that time.

Obviously if the situation should improve, then one or both of us would be straight out there trying to earn a wage and so we can't really see ourselves being unable to service the payments on a prospective mortgage. Looking back, we could have never foreseen any situation where at least one of us would not be in paid work by today.

As you say, we have had an appreciable amount of stress and worries and just getting through each day is hard enough at the present time. We cannot entertain entering into a worsening money situation where we might become pestered by lenders or any of their appointed debt collection agencies.

Kind regards

Harryp_24

I know this wasnt what you asked, but can you sell your house and downsize? it would be a lot better to downsize, pay off debts and live off the benefits then to secure the debts against your house which you would lose if you fail to pay.
I believe you would be better off doing what sammyjammy said and defaulting than securing the loans against your house.