Remortgage after major home improvements

GMDew

Hi, we bought a small house in 2018, but always had the intention of adding an extension to the side of the house to make it suit.

Two years later we contacted our mortgage company, trying to seek funding for the extension. We were told funding would not be available until the house extension was complete. So in May 2020 we started our house extension which has just finished this November, after seeking funding in the form of a large personal loan and (just because it went over budget) a good chunk of our credit cards.  

We have now approached our mortgage company and they have told us we cannot remortgage our house as we now have too much debt created from building the extension.
our credit file has now been damaged due to the Excess debt created by the extension and we are unable to get a mortgage to consolidate even though the new LTV is less than 80%.
To add to the problems, our mortgage is about to mature at the end of December and all payments are set to go by £150 a month.
does anybody know a good way for us to combine our debts so we can reduce our monthly payments clearing off our credit cards and our large personal loan? 

Thank you
Our costs:
mortgage 105k (£535/month)
loam: 31k. (£479 / month)
credit cards: 7k (approx £200)

K_S

@GMDew

What do you estimate the value of the property to be now? Mind you, the lender's valuer might not see the same uplift for a property bought 2 years ago, and it's unlikely that the money spent on an extension will reflect in the same increase in the value of the property.

As you are coming up to the end of your fix next month, the solution is to remortgage to a different lender while consolidating the non-mortgage debt of 38k on to the mortgage, thus taking your mortgage to 143k. Generally speaking you may get up to an 85% LTV mortgage (though debt consolidation limits may apply) so you need the new house value to be around 170k. Is that realistic?

In any case, you would be best off speaking to a broker as remortgaging with debt consolidation will narrow the pool of lenders somewhat. What your lender has said applies to their lending policies and risk appetite. Other lenders may exist who will consider offering you what you need.

GMDew

Hi. And thank you. 

We expect our home to be worth between 180 and 190k, so the idea was to borrow 144k total.  However, all the high street options are just doing a credit search, and the poor score ( purely from credit utilisation, in May our scores were excellent and since have not missed any payments) is preventing the application from going further.  Our mortgage advisor also tried Darlington Build soc’, but again we were told affordability was fine but the are not interested. 

Feel a bit lost and very frustrated that they cannot look past the debt.

K_S

I don't want to second guess your broker as they have all the information and I only have your two posts to go by.

But if you're saying that your credit history is good (no late/missed payments or defaults on file), you're looking to remo to 80% LTV with debt con and your borrowing is comfortably affordable to high Street lenders, I struggle to accept that you're at a total dead end. 

Forget the "score", have you gone through your credit reports thoroughly to make sure there isn't anything adverse on there that you may not be aware of?

MFWannabe

GMDew said:

Hi, we bought a small house in 2018, but always had the intention of adding an extension to the side of the house to make it suit.

Two years later we contacted our mortgage company, trying to seek funding for the extension. We were told funding would not be available until the house extension was complete. So in May 2020 we started our house extension which has just finished this November, after seeking funding in the form of a large personal loan and (just because it went over budget) a good chunk of our credit cards.  

We have now approached our mortgage company and they have told us we cannot remortgage our house as we now have too much debt created from building the extension.
our credit file has now been damaged due to the Excess debt created by the extension and we are unable to get a mortgage to consolidate even though the new LTV is less than 80%.
To add to the problems, our mortgage is about to mature at the end of December and all payments are set to go by £150 a month.
does anybody know a good way for us to combine our debts so we can reduce our monthly payments clearing off our credit cards and our large personal loan? 

Thank you
Our costs:
mortgage 105k (£535/month)
loam: 31k. (£479 / month)
credit cards: 7k (approx £200)

Reference mortgage. I guess your fixed period ends at end of December? What are your current lenders rates for another fix? 
I’d be very reluctant to move your unsecured debt to secured. Or is it not manageable to leave as it is? 

GMDew

Hi. I’ve kept a close eye on my credit file and everything was fine until I started to use my credit cards and recently at 85% full.  I log into callcredit, experian and equifax systems every month, and they were high-good or excellent, until September. 
as for keeping my unsecured debt, I can afford it, but there is nothing spare at the end of the month, so I need to reduce costs, otherwise we will go another year without a holiday, and I can’t remember when I last bought clothes for myself.  

Thanks

K_S

@GMDew If that's correct and the summary of what you're looking for is as I stated, all I can recommend is getting a second opinion from another broker. I just don't see enough in there to make your situation a no-go.

What did you mean by this "However, all the high street options are just doing a credit search, and the poor score is preventing the application from going further" 

Has your broker done multiple DIPs with different lenders and got rejected, or worse, multiple full applications?

MFWannabe

GMDew said:

Hi. I’ve kept a close eye on my credit file and everything was fine until I started to use my credit cards and recently at 85% full.  I log into callcredit, experian and equifax systems every month, and they were high-good or excellent, until September. 
as for keeping my unsecured debt, I can afford it, but there is nothing spare at the end of the month, so I need to reduce costs, otherwise we will go another year without a holiday, and I can’t remember when I last bought clothes for myself.  

Thanks

If there’s a new fix with your current mortgage provider it would be worth considering this, rather than going onto their standard variable rate
I would certainly do without holidays for the sake of keeping the debt unsecured. You will pay it down and it will get easier 
Once you turn the debt into secured debt it’s way more risky and the potential is there to lose your home if you are unable to pay it 

GMDew

@K_S
thanks for the advice, I think I’ll try another broker.    

[Deleted User]

Turning unsecured debt to secured is usually not recommended but as this was taken to improve the property then it falls in to a grey area really.

Credit utilisation isnt taken into account with a lot of lenders,  debt to income is the more common one to fail on but again thats not a calculation that every lender uses. 

haras_n0sirrah

There are some lenders who are better at debt consolidation and high debt to income ratio than others. Definitely get a second opinion.