What would you do?

Manchestermrs

Believe it or not we’re not big spenders but it feels like we’re in a horrible situation with debts and loans and we need to do something to get out of it!

To cut a long story short, we had a lovely three bed house with two kids then we discovered we were expecting twins and so rather than move we extended our house adding two bedrooms and two bathrooms plus extending our downstairs to create a huge family space etc. It is now our dream home. 

This all ended up happening during the pandemic when I was on maternity leave and - as I was a contractor - I then didn’t end up working again until 10 months after they were born, rather than 6 months. 

We ended up needing £200k to do all of the building work but could only get around £120k added to our mortgage so we had to get loans and fund the rest on credit cards. 

Two years later and we’re paying loads of the loans and credit cards every month plus £1,400 every month on nursery fees! 

The upshot is that we’re currently spending around £1,000 more per month than we make. Our loans and credit card payments along total more than £1,500 every month and with the nursery fees and our mortgage it is not sustainable. 

Thankfully our nursery fees will reduce by around £600 per month in January when we get the free 30 hours childcare. Plus my husband and I will receive a pay rise which will bring up our income by around £300 per month. 

We would obviously really like to add the debt to our mortgage as it was all accumulated from our house but with our current expenditure in the red every month (we keep adding to credit cards), would they say yes? Obviously thinks will look better on paper on January. 

The numbers 

Mortgage debt - 479,000
Second charge mortgage - 36,000
Loans - 40,000
Credit cards - 20,000


We earn 115,000 per year between us. Our fixed rate is with Halifax for two more years. 

What would you do? Ask Halifax for more money again? Will try understand that if we use the money to pay our debt it will mean we are freeing up loads of money every month and take that into account when assessing us (ie. I doubt a £60k loan would cost us £1,500 per month). 

Or should we try to get a new fixed mortgage altogether now and just accept we’ll have to pay approx £10k early repayment charges? 

We live in an area where house prices are absolutely ridiculous so I think our house (now extended) is worth £1.25m so we have around 60% equity in it. 

Thanks everyone for your advice! 

FrugalCat

Assuming the big costs is the credit card interest, can you not shift the debt to 0% interest cards?
https://www.moneysavingexpert.com/credit-cards/balance-transfer-credit-cards/

Aside from that, I'd advise against being in the red every month. Living standards are sinking rapidly, meaning your money needs to stretch further in the foreseeable future.
Get on top of it as soon as you can - you're in control now. Because if your lenders start doubting your creditworthiness, you're in trouble.

K_S

@manchestermrs No easy answers there. My very very general thoughts based on the limited info in the post -

- as the poster above said, definitely see if you can transfer the cc debt to 0% to give you a bit of breathing space

- additional borrowing from Halifax to consolidate debt is an option in theory, but based on the limited info in your post, I don't think the numbers will add up along with Halifax criteria

- assuming that you're currently on a decent fixed rate for another two years and have an ERC of 10k to come out of it, remortgaging away to a 3.5-4%+ rate with another lender is something you probably want to avoid

In your place my first port of call would be to explore second charge debt-con options and seeing how potential post debt-con numbers look. 

ACG

Good amount of equity, decent incomes - all looking good.
Speak to Halifax. If they wont do it - I think you might struggle as it is going above 4.5x income and the nursery costs wont end for 4 months. But you might be able to wrap the debt up into a second charge easily enough - it will cost more than if halifax were to do it though, but would avoid the ERCs. 

Speak to halifax, if no luck speak to a broker. 

Manchestermrs

Thanks all. 

We’ve looked again at our budget for January onwards as we’ll be paying around £600 less in childcare then. If we are careful we can just about break even. 

So we plan to hold on until January and then try to either do additional borrowing with Halifax or just sit it out until either June 2023 (when we would pay approx £8,000 ERC) or wait until June 2024 when our current deal ends.

We have thought about a second charge mortgage and if we feel we are really struggling it might come to it but we’d rather than get another one as we had to pay £3k fees and we’d rather not add that to our current debt. 

We are on 0% credit cards now - it’s the loans that are costing us so much monthly as we have a second charge mortgage over 10 years, then three loans between us which have approx five years left to pay. 

Thanks to everyone for your help. Hopefully our when money situation improves we can just about keep ticking over.

ACG

Maybe pick it up in October. When the nursery costs are only 3 months away from finishing, some lenders will ignore them. 

Manchestermrs

@ACG thanks, we’ll give it a go!