Debt consolidation query

zipcat1980

Hi all,

New to the forum- would appreciate some advice on our situation.

Applied to our mortgage company for additional lending to consolidate credit card debt. The figures involved comply with the mortgage company's standards re LTV for consolidation, and we had it confirmed that the new payment amount would be deemed affordable (assuming the existing credit cards paid off and therefore will no longer need to make those payments).

The application has however been rejected by the underwriters and whilst I have not yet gained a full explanation (and I don't know if I will?), my discussion with the mortgage company suggests that they think that 'other payments' we need to make make the monthly payment for the mortgage unaffordable.

I am left confused- are these other payments they refer to the very payments we are seeking to put an end to by taking out the additional mortgage borrowing? If so how does anyone consolidate debt?! We will not be making these payments anymore if we gain the additional mortgage lending.

I will do everything I can to check credit reports to see whether there is anything else they are seeing that I am not aware of, but does anyone have any clues as to what they are referring to? We obviously have other outgoings- food bills etc but I thought 'payments' referred to by underwriters were normally things like credit card payments, not living expenses..

I appreciate there are lots of reasons the mortgage application might be turned down and I may not be able to gain a full understanding of why from the company.

All advice welcome!

kingstreet

... and the lender is?

How did you establish the criteria for additional borrowing for debt consolidation for existing borrowers?

Thrugelmir

zipcat1980 wrote: »

I will do everything I can to check credit reports to see whether there is anything else they are seeing that I am not aware of, but does anyone have any clues as to what they are referring to?

Has the debt accumulated over an extended period time due to a consistant overspend. A failure to budget properly. An underwriter may well have reservations that you will simply follow the same road again in the future. Debt consolidation may reduce your monthly outgoings. However still means that the money has to be repaid over (often) a longer period.

zipcat1980

Thanks for the responses. Its Bank of Ireland. The criteria for debt consolidation is max 75% LTV which we would be below. The resultnat mortgage payment is well within affordability.

We appreciate the pitfalls re debt consolidation to mortgage.

The comment re reservations about us building up debt over time may be part of the issue i suppose.

I guess we can ask for further clarification from the mortgage company and take it from there.

minimike2

It is likely that the current debt is being accounted for in the affordability calculation despite it being consolidated (not paid off - You aren't paying them off, you are just moving the debt). Despite the consolidation, lenders may factor in the debt remaining in place, and so "double count" it, if you will, so that if you go and re-spend they can assess if the mortgage will remain affordable.

Stats show that a lot of people who consolidate just go out and spend it all again.

enthusiasticsaver

Consolidating debts is a bad idea, particularly by putting it on your mortgage.

The reason the bank deems it unaffordable is they look at current debt and the new debt application and together they have deemed it unaffordable. This is because for the vast majority of people who consolidate debt they run up more debt after clearing it once. The DFW forum is littered with people who have done just that time and time again so before long they are up to £30k upwards. This is because people need to change their spending habits to repay debt and a consolidation loan does not do that. It is just moving it.

Post an soa on the DFW forum. You need a budget and will need to either cut expenditure or up your income.

zipcat1980

Thanks again for the replies. Spoke to the mortgage provider today,minimike2 is correct- they base outgoings on the current situation, so do not take into account the fact that we intend to pay off the credit cards and therefore would no longer be making any monthly payments.

That seems to make the idea of debt consolidation pretty tricky! They will only lend additional to pay off the credit cards, if we can demonstrate we can afford to keep paying the monthly bills and the additional mortgage.

Seems like we are a bit stuck but may it is worth speaking to a broker / advisor to see whether there are any providers out there who take a different view? i.e. if they can secure that the money goes to paying of the credit cards.

I appreciate consolidation is not a solution- but it would decrease my monthly payments by about 80% and make the current situation much more affordable. I will look at doing everything I can to reduce the debt, but at present bills plus monthly payments leaves very little left over to pay off any debt.

The drastic option would be to sell the property, pay off the debts, and start again- but I don't really want to do that!

amnblog

You have picked one of the Lenders that is an exception rather than the rule.

Thrugelmir

zipcat1980 wrote: »

I will look at doing everything I can to reduce the debt, but at present bills plus monthly payments leaves very little left over to pay off any debt.

That's in part why lenders don't wish to make it easy. Nothing like experience to focus ones attention. The Debt Free Wannabe Board is the place for support and advice when tackling ones one circumstances directly. .