Release equity from properties to pay off credit cards

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Herzlos

johnwest said:

Never came across savings which offered more interest than the inflation. Maybe if I was looking for them really hard I would have found one that matches inflation. Nothing more.

Since I was bent on earning money and not losing them I stayed clear of savings. Equity is savings.

Just to prevent some pointless comments - even if sell with big loss I am still massively in profit for last 10 years period. If I was the savings guy, by now, I wouldn't have more than the deposits and definitely much less than deposits if you take into account inflation.

Of course, having to liquid savings has landed you in this trouble since you can't rely on gaining anything from the equity without selling given the bad debt ratio.

No-one could have predicted what Brexit and Truss did for mortgages though, but with £40k in debt it'd have been prudent to try and take the equity out earlier. You gambled there and lost.

I can't believe that someone with £1.8m in property equity doesn't have enough assets around to manage to pay down a comparatively small £40k (or even some of it) without having to sell a property.  No cars, fancy electronics, jewelry, hobbies, etc? What are you doing with all of your income? You can't cut your outgoings a bit and pay the credit down before you start paying interest?

But then I also can't believe that someone with that much property equity doesn't at least have a few £10k's stashed in an ISA or something for rainy days either.

If you're still going to be better off after selling a property then try going down that route. If you're getting £100k in equity from a house then you should be able to clear the debt and get another one.  If it has tennants, then you can presumably sell it with the tennants, or you can always see if the tennants want to buy it from you for more than a property buying place will take?

Ryan_Holden

OP, if I may, your problem is you are viewing this on a very personal level and you are coming across as seeming to think you're "good for it", and now you appear to be struggling with the idea that the banks aren't looking at you and saying "yeah, he's got some assets behind him so he must be good for it".

The reality is, you're not "good for it" in their eyes.

The banks don't care about you as a person, you are a spreadsheet to them. So the sooner you stop justifying to us why you're absolutely fine to loan money to, the better off you'll be.

Unfortunately there are no magical mystery lenders I'm aware of that will throw £40k at you without doing the exact same due diligence as each other.

You have assets to swap for cash. Cash that you say you need. That is your option.

It's also weird that you say things like, and I'm paraphrasing, "turning a unsecured debt into a secured one is only a bad idea if you plan to stop paying it off" which, yes, is true, but I don't think there are many people who plan to stop paying off secured debt.

And this - "Removing tenants on standard monthly rolling contract is not such a big deal." I can assure you, it is. You serve an S21 with a months notice, they decide they can't afford to go so they sit tight. You apply for an eviction order, it takes 7 months on average at the moment. They still don't go. You apply for bailiffs, it takes another 3 to 4 months. All at your cost.

It is a big deal.

theoretica

johnwest said:

Since I was bent on earning money and not losing them I stayed clear of savings. Equity is savings.

Equity is indeed savings - but too much equity can also be a cash flow challenge as you have discovered. 

_Penny_Dreadful

Even if you did find an individual to lend you £40,000 you’re not going to be able to add their name to the deeds to one of your properties without the mortgage lender’s permission. They could possibly get a second charge put on the property to secure the loan but that will cause you problems when you attempt to remortgage to release some equity. 

If I had a spare £40,000 just sitting in a savings account earning not very much there are a 101 other things I could do with that money that’s more appealing than taking a substantial risk and gambling the money to lend to you for a few months. 

The decision not to let you borrow more is not illogical on the bank’s part. This isn’t pre-2008, which is when I suspect you started turning your £5k into over a million when by heavily borrowing, lending is more strictly regulated now and the lender doesn’t want to be hit with unaffordable borrowing claims. Your current lender doesn’t want to lend you more but perhaps another mortgage lender would if you’re hell bent on turning £40,000 of unsecured debt into secured debt. 

johnwest

CliveOfIndia said:

The problem with secured debt is not so much bankruptcy, it's when you just can't afford to keep up mortgage repayments, that's when the problems arise.  Bankruptcy is a whole different ball-game.May I politely ask why you posted here in the first place?  You've been given a lot of very sound advice, yet you appear determined to ignore it.  People are not being judgemental, ignorant or just plain "nasty", rather they're doing their best to provide helpful answers to your questions.

Well, my bad, I wasn't very precise. I didn't meant bankruptcy per se, but rather defaults.

I have been given advice to sell the property and that is the very thing I want to avoid and I outlined the reasons before.

Advice like sell now and buy another later is not a great one. If I sell now I will get a 50k loss and have no property. Then I to buy another one would need to splash out on deposit and mess about with renovation and setting up etc. I'd rather settle on lower retirement income then try to buy another one.

To be honest I am at the stage when I do not want to play the game anymore and looking to retire ASAP. Retirement is not just time off. I am workaholic and I wont be sitting on a beach all day long. Just don't want to play property investor anymore. Never liked it anyway. It was just necessity.

I have ideas and plans which could potentially bring even more income, but it is not guaranteed.

When I retire I wont be paying arm and a leg in taxes on rental as I wont be working anymore and I will be doing what I love what has tiny monetary costs and if it happens that I will cash in on it then great, if not then that's fine - its not for profit.

Never had or desired lavish lifestyle and that wont change. Could have bought top car couple years ago, but never even considered it. Was always driving few years old ordinary cars, because it just needs to get me from A to B in reasonable comfort and never was interested in showing off.

born_again said:

Only way any 3rd party would lend that to you would be secured on property @ a large interest rate, if you can find anyone. So while you keep the property for now, how long before you are back in the same place?

And this is exactly what I am looking for!

Problem with banks is they do have "affordability calculations" which I do not pass as they take into account card repayments even when they know there wont be any card repayments as soon as I get second charge. There is no such issue with private lending and I do offer security in form of second charge if required. That is pretty much most solid security you can think of.

Contrary to some comments from people who didn't read or understand what I wrote, I never even hinted I wanted to borrow based on my "good word". Security is and always was on offer. Also large interest rate is not a problem as I need it for just few months. And it is not wishful thinking.

born_again said:

You have a £40K debt you can not service, without borrowing more to pay it back, over time it could/will get worse. As no one will lend you anymore. Which is the situation you are in now. Only you can afford the mortgages.
So it snowballs to the point where you can't pay the mortgage on properties.

Its not like that.. Problem with cards is twofold:

- interest rate is painful, but I can live with it until its paid off.

- because of how cards are viewed that 40k is killing my credit file and hinders all near future plans

Swapping card % into mortgage % is way cheaper option, but most importantly I need go back to excellent credit rating as being average/good has detrimental effects on crucial moves I am planning soon.

Herzlos  said:

Of course, having to liquid savings has landed you in this trouble since you can't rely on gaining

...

than a property buying place will take?

That is the core. If I knew banks rules will change I wouldn't do it the way I have done it.

No fancy car. Never needed or wanted one. Probably wouldn't buy one even if I won Lottery.

Don't like to stick out and decent, comfortable, average car is all i ever needed.

You don't achieve such a wealth bump in relatively short time by buying Bentley as soon as you can afford the purchase price

The "bump" is a result of me being wise and lucky at the same time . Wouldn't achieve it without one of the aspects. However, no matter how wise or lucky you are, accidents do happen. One just happened to me.

I do have valuables. They would cover the cards easily. Not keen on selling them as they are for REALLY RAINY DAY. On top of that it would take lots of time and effort to cash in on them at price better than half the value. I am not pushed that hard. To be fair, it would be more detrimental to cash in on the "rainy day assets" than selling a property and swallowing the loss.

What I was doing with all that income? Well, reinvesting.

That's the weird thing. The 40k is relatively small amount.

I am not going to try resolve the matter dwelling on it over next several months.

Will give it few weeks at most and will resolve it at the loss if I have to.

Just want to avoid the "spanner in workings" and find better solution - third party short term, secured loan. Even if it is costly. Cost is relative term and not always its money directly. Spending months on resolving this problem would cost me more money (time!) than selling property as it would put significant delays on other ventures I am involved in.

Time is THE MOST valuable commodity. You can replenish anything that's lost, apart from time.

This forum was an attempt to find a solution, but I already have little hope for it here and its turning now into just a relaxing break in busy a schedule

CliveOfIndia

johnwest said:

Problem with banks is they do have "affordability calculations" which I do not pass as they take into account card repayments even when they know there wont be any card repayments as soon as I get second charge.

Putting aside all your other points, this is the main one.  It's the same argument whenever consolidation loans are discussed.  How can the bank "know there won't be any card repayments" ?  They lend you the money, you nip down to Chepstow and put the whole lot on "Hobbling Harry" in the 3:30.

Yes, I know you have no intention of doing that - but what's to stop you if you fancied a punt?  This is the crux of the matter - the bank cannot possibly force you to use the loan to repay the credit cards.  They therefore have to assess affordability on the basis of any new loan being in addition to your existing debt.  Simple as that.  That's a standard assessment model that any lender will use.  And if they didn't assess affordability responsibly, we'd be right back to the bad old days of spurious compensation claims for mis-sold loans.

cymruchris

johnwest said:

Thanks for comments !

Just to answer to some of the recent point.

The 0% balance would be an answer, however the existing credit card debt is an obstacle. I have been operating with 0% balances for years. It was crucial part of the strategy, especially in the beginning, which  allowed me to multiply initial "wealth". Had top limits on several cards and used most of available credit when needed, but never paid a penny in interest as always was repaying all before % hits. This first time that it is different scenario.

I do expect large amount of income within a year. One of the supermarkets approached me with offer to buy part of my foreign land and they offer 200k. Not huge amount, but more than enough to solve my problem. Problem is that before the supermarket can buy it, the local council has to change land designation to commercial and that might happen next week or 12 months from now. I have no influence on how fast the council will process my application, so for now I prefer to be on safe side and assume its not happening and I wont rely on it in any financial planning.

As mentioned I could have taken different route than using credit cards to pay for large bills and my mistake was that I assumed nothing changed and extra borrowing against property wont be a problem. I  waited for fixed rate deals to end to remortgage, pull some equity out of properties and pay off the cards.

I have not attempted extra borrowing a year or two ago for couple of reasons:

- not foreseen that I will have difficulties with it now

- wanted to change a lender when the fixed term ends, and having extra borrowing would complicate matter

- have been preoccupied with other matters and cards seemed simple and efficient

When would the borrowing be repaid?

Within 3 months.

I have been assured by banks, that extra borrowing on the mortgage is waiting and as soon as I pay off the cards and credit file updates I will get it.

If I had 80 or even 120k more debt in form of mortgages I wouldn't even remotely consider it a problem.

However 40 on cards is a problem - it costs way more and it is killing my credit rating on top of it.

For that reason I need to pay the cards off ASAP.

Sad thing is that all my properties are on 60% or less LTV. In normal circumstances I could easily go to 75% (or more). That would release several times more than the debt on cards. However that, relatively small amount on cards is preventing the release of equity. So back to viscous circle.

If I can add that as much as there's the framework of a plan you have in mind - there are also uncertainties across the board here. What if the local council won't designate the land as commercial? The supermarket will go elsewhere, and that £200k won't arrive.

Using 0% cards as a crucial part of your strategy is all well and good while those cards are available. Credit in general is not as easy to obtain as a couple of years ago though - so was there ever a backup plan for when 0% cards weren't available? (Before where you're at today).

I know you say you don't want to sell a property - but from the circumstances you've outlined that's likely the easiest, quickest way to resolve your issue.

Yes - you can continue struggling on trying to find a way to pay off the credit cards, probably paying growing interest. The MSE members here will almost always recommend the easiest, safest, most reliable way out of a corner. It's taken as a given though that not everyone will want to follow this route.

You might find an unofficial channel to get your money - but I imagine it'll cost disproportionately more, and come with higher risks.

Herzlos

johnwest said:

I do have valuables. They would cover the cards easily. Not keen on selling them as they are for REALLY RAINY DAY. On top of that it would take lots of time and effort to cash in on them at price better than half the value. I am not pushed that hard. To be fair, it would be more detrimental to cash in on the "rainy day assets" than selling a property and swallowing the loss.

You might be able to borrow using some of the valuables as collateral, but you're still going to be showing a debt depending on how it works. I think some pawn shops will essentially buy the items from you for £x and give you a few months to buy them back for £y, in which case there's no debt and you can get your mortgage.

Though to be fair given how little the £40k seems to be to you, your best bet is to just carry on until you've got it paid off which is hopefully within a year.

Ryan_Holden

I'm finding it difficult to take this post seriously now.

You have been told twice already that the banks have to take into account your cards because, again, as you have been told, there is nothing but your word that you will actually clear the cards rather than splurge it on something else. I know you think it's daft, but it's just how it is.

You're a spreadsheet cell to a bank, they don't care about your mentality or your intentions, just about protecting their investment.

You keep talking about "rainy day" assets and now "really rainy day" but you're unable to recognise that this IS your rainy day.

But IMO for someone to describe £40k as a "relatively small amount" yet lack the ability to actually lay their hands on it, well, I'd say that person isn't really living in the real world. Liquidate your asset or some of the many possessions you say you can cover it with and all this goes away.

With each post we get a new piece of information, new assets, new wealth, new future opportunities to be realised. It's all very odd.