Increase Mortgage Borrowing to Cover Pandemic CC bills- Catch 22

SnapperUK

Firstly, thank you for taking the time to read all of this post.
I have reposted here, having already posted on a different (debt free) board on the suggestion of a contributor. 

Fundamentally we are not in a completely dreadful situation, but just feel a bit stuck at the moment. We live in central London and some of the figures reflect that.
Both my wife and I run own own separate limited companies whose business has been completely decimated by the pandemic. We don't employ anyone except ourselves, so fortunately have not had to make hard choices there. 
But our income has really collapsed. We pay ourselves low wages and normally take out money as dividends. This has been impossible in the last year.
We have wracked up about £40K on cards. We are not in a position to clear these and worry that making minimum payments is costing us a lot each month.
On the plus side we do have a home and a BTL property which both have lots of equity in them.
The bottom line is how should we release some equity to pay our CC debt and lower our monthly out goings?

Let me give you more details.

We have about £40K on a number of personal credit cards. We repay about £1000 a month and are charged about £400 in interest. We do have a 0% deal on some of the debt.
We calculated that £40K at our current BTL interest rate (1.48%) would be cost just £49 in interest each month, added to our BTL mortgage. In theory extending our borrowing feels like it should be very straight forward. The BTL property was last valued by the Building Society in 2019 at £935,000 and we owe £378,000 which is an LVT of 40.5%. I approached the BS about borrowing more. But when I told them that it was for 'debt consolidation' they said that they wouldn't do it. 
The BTL property works very well, we receive £2730 per month in rent and pay £466 to cover interest only mortgage. Stepping that up to £515 (£466+ £49 additional interest) a month, wouldn't dramatically alter the economics of the BTL property.
As far as our home is concerned we have an even better LTV. Before the pandemic scuppered it in March 2020, we had accept an offer to sell at £1,725,000. We owe £404,000. Which gives a LTV of about 23%. Interest only mortgage on this one is £516 a month.

The real killer for us are school fees, about £3000 a month in total. There is no doubt that we have had a high cost life-style, it wasn't until the pandemic that we realised quite how precarious it all was. We have tightened up in every area and have begun to generate extra income (£13K in 100 days), but we need to sort out this credit card situation.

I feel that we are almost caught in a catch 22 situation. The CC debt is making it harder to refinance the properties, when the refinancing would drastically reduce our outgoings and improve our credit profile. We have over £1,750,000 in equity between the properties and want to release £40K. Surely it should be straight forward...

As I mentioned our BTL lender was not interested. I also approached my bank for a debt consolidation loan and they said they wouldn't help, based on affordability criteria. I know from previous conversations with the mortgage lender for our home that they wouldn't lend to us the current amount we have borrow were it new business, so they are unlikely to want to extend us further lending. Given that our income has suffer so badly over the last 18 months we are going to be struggling to meet affordability criteria, when in fact that is the very reason we are doing this... to save £950 a month going out that we can't currently afford.

We have been hoping that sunlit uplands are just over the covid horizon and that our businesses would soon see an up tick... but nothing significant yet and time has come to act.
Please do ask any questions if I haven't made the situation clear.
I welcome any advice. Thank you for taking the time to read this. 

K_S

@snapperuk Setting aside the question of whether or not debt-con is the right option for you, my thoughts are - the most straightforward options would involve raising funds from your BTL property -

1. Further advance/additional borrowing through the current lender, which looks like it's a no go

2. Remortgage to another lender who allows capital raising for debt-con and doesn't have a minimum income requirement.

3. Getting a second-charge loan on your BTL property

As you have correctly identified, 1 is likely to be the cheapest option. From a pure interest-rate perspective, 2 is likely to be cheaper than 3 but with the overall cost of remortgaging (and the whole mortgage going on a potentially higher rate) it'll depend on the specifivc numbers and what you are eligible for.

MWT

SnapperUK said:

We have been hoping that sunlit uplands are just over the covid horizon and that our businesses would soon see an up tick... but nothing significant yet and time has come to act.

It feels like this is a pivotal decision point...

If you are just waiting for the final restrictions to be lifted later this month and your businesses spring back into life then any of the measures suggested to deal with the credit card debt seem sensible.

If on the other-hand with a cold hard assessment of the businesses there is actually no real prospect of them returning to their former levels of activity any time soon then you may need to look for a buyer for your house and downsize to release cash and get yourselves mortgage free on the residential property.

SnapperUK

MWT said:

SnapperUK said:

We have been hoping that sunlit uplands are just over the covid horizon and that our businesses would soon see an up tick... but nothing significant yet and time has come to act.

If on the other-hand with a cold hard assessment of the businesses there is actually no real prospect of them returning to their former levels of activity any time soon then you may need to look for a buyer for your house and downsize to release cash and get yourselves mortgage free on the residential property. 

Thank you for your reply. We do expect to return to previous levels of business. The travel restrictions have been particularly tough for us as much of our business is for services to clients coming to London from abroad.

getmore4less

Summary.

SnapperUK said:

..........
Let me give you more details.

£40K CC ~£1000pm ~£400 interest. (some 0%)


£40K BTL interest rate (1.48%) would be cost just £49 in interest

BTL property
£935,000 (2019)
£378,000 mortgage (won't lend more for debt) 

£2730 rent 
£466 mortgage payment . £515 (£466+ £49 additional interest) a month, wouldn't dramatically alter the economics of the BTL property.


Home.
£1,725,000.
£404,000. £516pm

school fees,
~£3000pm

extra income (£13K in 100 days), but we need to sort out this credit card situation.

............

Given that our income has suffer so badly over the last 18 months we are going to be struggling to meet affordability criteria, when in fact that is the very reason we are doing this... to save £950 a month going out that we can't currently afford.

We have been hoping that sunlit uplands are just over the covid horizon and that our businesses would soon see an up tick... but nothing significant yet and time has come to act.
Please do ask any questions if I haven't made the situation clear.
I welcome any advice. Thank you for taking the time to read this. 

£40k £600pm interest is average rate of 17.5%

1 year looks like this 

amount	rate	payment	owing	interest
£40,000.00	17.50%	£1,000.00	£34,578.81	£6,578.81

How much of the CC is 0%
What is the breakdown of amounts and rates


Have you considered factoring(DIY) with your tenants with a lump sum up front discounted rent.

£2kpm(net) 12 months up front £24k,  10% discount,  pay off 1/2 the CC debt. 

Depending on the profile of the CC hitting the high rate ones will make a significant impact on the cashflow and the costs



Will the schools let you defer the fees?