Use an unencumbered property to pay off debts?

Chunky_Russell

Hello All,

Just after some info as I'm looking into taking out a mortgage on my property to pay off debt & raise some capital.

The house is worth approx £185k & is currently mortgage free. I'd be looking to borrow £75k (max) to pay off £35k debt & to use the rest for home improvements. I'm in my early 40's & earn £30k/year...& my credit rating is 'good' according to Experian.

Are there high street lenders (Halifax, Nationwide etc) who would cover this or is it lending that they would avoid as it's to partially pay off debt? Any info/advice would be appreciated, thanks.

CR

silvercar

My first question would be whether this is sensible. Moving unsecured debt to secured puts your home at risk. Are you confident that you have the ability to repay in the long term? Have you addressed the issues that led to this debt?

Chunky_Russell

Thanks for the reply silvercar. I understand where you're coming from...securing the debt against my property isn't something I'd do lightly. Just looking at all of the options.

Yes I have the ability to repay in the long term. The debt has built up over the years...car purchase, home improvements on a previous property etc.

Another option would be to borrow enough to clear the current debt (£35k) & then do the home improvements as & when I've saved up enough capital.

Chunky_Russell

......just trying to find out if the high street lenders would consider this mortgage application as it would be used to pay off debt?

ACG

Many lenders have a debt to income calcualtion whereby if your unsecured debt is above a percentage of your income (varies from 30%-100%) they will not lend to you.

It can be done on the high street, but you need to be checking that bit of criteria before doing any credit checks...or speak to a broker.

Chunky_Russell

Thanks ACG. So do you mean what my total monthly debt repayment is as a percentage of my monthly income?

ACG

No, your total debt compared to your annual income.

ie if you earn £30k a year and your total unsecured debt is say £20k that is 66% debt to income. Some lenders would decline you outright for that, others would not care.

Chunky_Russell

In that case mine is 117%.

Chunky_Russell

.....Nationwide calculate it like this.....

"1. First, add up your recurring monthly debt – this includes rent or mortgage payments, car loans, child support, credit cards and student loans. Some banks and building societies will include the new loan, so it’s best to include your expected monthly payment.

2. Then tot up your monthly income. As well as your gross wages (before tax and national insurance contributions), don’t forget to include freelance income or child benefits.

3. Finally, divide the monthly debt by your monthly income and multiply it by 100. So, if your debts came to £1,020 and your monthly income was £2,916 your debt-to-income ratio would be a healthy 35%."

Chunky_Russell

....that looks like the industry standard to me.

ACG

Post Office/Bank of Ireland

Debt income ratio: Our affordability assessment will include a review of the customer’s overall circumstances including the amount of debt
they have in relation to their income. We will not lend where the applicants have unsecured debt (excluding student loans) in excess of 50% of
their assessable gross annual income, even if this will be repaid in whole or part before completion. Cases with a lower debt to income ratio
may still be referred for individual underwriter assessment

Im not sure there is an industry standard as such.