Consolidating debt into mortgage

CSL0183

Hello,

I bought a house in 2020 for £250k. At that point I had no debt and the plan was to build an extension and fund it through personal loans and credit cards (Was the only option available at the time as only had 15% equity, i.e the deposit)

Fast forward 18 months, the extension is complete and the house is now valued at £450k. As part of that we have around £125k worth of loans and CC’s that we need to clear off. The idea was always to refinance the mortgage based on the higher valuation. 

We can get the £125k from our lender (Halifax) but they have advised us that we can only get this out over a maximum of 10 years. We did approach them beforehand with our plans and this was never mentioned. 

Although we can afford to do this, the monthly payment around 50% of the amount we are paying now, this has caught us by surprise and ideally we would like it to match the same 20yrs we have outstanding on the main mortgage. 

Our fixed rate finishes in October 2022 with a 1% ERC penalty so this is now under consideration to move to a new lender. 

Is anyone aware of any lenders that will treat a debt consolidation type mortgage for longer than 10 years? Surely this is a very common scenario so I have been left surprised by Halifax’s stance.  

I guess I should phone a mortgage advisor and ask but thought I would touch base here first. 

Thanks 

K_S

@CSL0183 Assuming I've understood your question correctly (that you want to do a debt-con remo in time for your fix ending in October), if/when you remortgage it will end up as a single part mortgage on one single term so however long/short that is as per your requirements and circumstances.

CSL0183

K_S said:

@CSL0183 Assuming I've understood your question correctly (that you want to do a debt-con remo in time for your fix ending in October), if/when you remortgage it will end up as a single part mortgage on one single term so however long/short that is as per your requirements and circumstances.

That’s the way I always understood it too but the mortgage advisor at Halifax is saying differently. 

He has told me that the £125k equity I take out to pay the loans will be marked specifically as Debt consolidation and that’s always restricted to 10yrs. Even if I try to remortgage this in future it will not be possible as it’s not possible to extend this part of the mortgage in excess of the original 10 years. I asked about taking out the 10 year remortgage on say a 2yr fix and then at the end of that I would then be free to remortgage normally (it wouldn’t be debt consolidation at that point) and he again said I wouldn’t as that mortgage is marked as debt consolidation and always will be. 

He said it’s a regulation to avoid interest on debts being accrued over long term. Think buy a £20k car, if I were to consolidate that over 25yrs, that car may then cost me £50k. 

I don’t know if I have just got a bad mortgage advisor. 

My current mortgage payment is £1025 and this 10yr £125k secondary mortgage will be £1250 (ish) so £2,300 which they are happy to lend me. 

All seems bizarre and at odds of which was my original belief. My plan was to remortgage the £195k outstanding and the £125k new = £320k mortgage with a £450k house. I can still do that but with the main mortgage at 20yrs and the secondary at 10yrs. 

K_S

@CSL0183 It looks like he's talking about "remortgaging" with Halifax but it's not clear.

In any case, what he's saying does not apply if you were to remortgage to another lender.

CSL0183

K_S said:

@CSL0183 It looks like he's talking about "remortgaging" with Halifax but it's not clear.

In any case, what he's saying does not apply if you were to remortgage to another lender.

Thanks, I guess I’ll likely get out of the Halifax mortgage and pay the ERC and look at lenders who will offer a new mortgage incorporating the debt consolidation part. 

Do you recommend any particular lenders good with debt consolidation that I can go too direct or is it just a case of going through a mortgage advisor and letting them do the hard work? 

K_S

@CSL0183 With 125k of unsecured debt to consolidate, it's unlikely to be straightforward. I would recommend using a mortgage advisor. If you don't want to pay a fee, plenty of free ones on the MSE guidance here https://www.moneysavingexpert.com/mortgages/best-mortgages-cashback/#step3

[Deleted User]

Halifax only do debt con for max of 10 years. 
Hsbc only do max 50k debt con
Santander only does max 50k debt con
Skipton dont allow it as a lending reason at all

Just a few examples of how lenders have various criteria in this area. 

Plenty lenders will allow what you want but best speak to a broker to avoid wasting your time.

The Halifax mortgage advisor is correct in everything that was said by the way. Their policy is quite strict on debt con and they mark it as a debt con loan forever as they only allow it to be done once every 10 years so need to keep track

getmore4less

The change of LTV on your original loan should get a lower rate for a few months covering some of the ERC if you switch lender.

What are Halifax terms on additional borrowing for property development.

Can you structure some of the extra under that umbrella.

[Deleted User]

getmore4less said:

The change of LTV on your original loan should get a lower rate for a few months covering some of the ERC if you switch lender.

What are Halifax terms on additional borrowing for property development.

Can you structure some of the extra under that umbrella.

Even if the funds were used for development it is currently held as unsecured debt and will be processed as a debt consolidation case.   Not an approach that all lenders take but the majority will class it as debt con regardless what it was used for. 

Also, expect a lot of brokers to pass on the case as debt con is tough for banks to do but even harder for brokers to justify.  For instance I wouldnt do a debt con case unless I could evidence that a client is about to fall off a cliff financially and cant afford to keep going under current arrangements. 

london21

You will have more options when the current mortgage ends and can try a different lender.
Halifax's lending criteria will be different to other lenders.
At present your current mortgage does not end until October 2022.

You can either wait and try a different lender or stay with Halifax.

Virgin money for example are flexible with regards to debt consolidation, they allow up to 80% LTV.

Your property has appreciated in value, you can perhaps stay with Halifax and later move to another lender.

dimbo61

In the mean time throw every spare Penney at the most expensive debt first.