DMP vs. Second Charge

s3nf

I am currently in a situation, which I am quite scared about to be frank. I have never thought of ourselves as living beyond our means, but recent events would state that we have been doing it for years and now I feel trapped. I am trying to work out how to move forwards without screwing myself over further and getting in to more trouble down the line. I fear that everyone that I talk to from a financial stand point has their own interests at heart and not mine, so I hoping you can share some useful advice.

We moved in to our home in August 2019 and were fortunate enough to have a large deposit. The house was purchased for £1,055,000 (it is now valued at £1,250,000) and we have an interest only fixed mortgage for £400,995. The house required some work doing to it when we moved in and as a result took out loans to do this. In order to consolidate them we took out a Second Charge for around about £95,000.00. My wife and I have pretty much consistently lived on credit cards which are in my name (she doesn’t work) and I have always made over payments to keep clearing them down, but they have a habit of running away with us. They probably aren’t the best credit cards for interest, but had good perks (BA Amex, BA Barclaycard & NatWest). Fast forward a couple of years and the Second Charge ended it’s fixed rate. Our mortgage broker suggested we move to another lender and borrow more to consolidate new loans and credit card debt, so we did this and borrowed £166,706. The mortgage brokers advice at the time was do it for 2 years and then it will end at the same time as your main mortgage, you will be earning more and can just wrap it in to one mortgage.

End of February this year and I am in the US for work but my wife opens a letter from our second charge provider saying our fixed rate has ended and we are now on a variable rate. This means payments have gone from £870.76 to £1,346.09. This was a major panic as came completely out of the blue. I guess I should have been more on it, but I had assumed it came up at the same time as our Mortgage, which cannot be moved without early repayment fees of around £9,000 until September. This has now become unaffordable.

Since taking it out, we have spent on the credit cards as before and then I have got panicked as they grew so took out loans to pay them off so that the interest was lower. The disposable income in our account got less and less so the spending had to keep on going on the credit cards. 

In summary, we now have around £110k in debt on loans and credit card debt of £35k. 

Our mortgage broker has asked us to calculate how much we have spent on the house since purchasing it and I did this yesterday, it is £150k as they believe that our current second charge provider will increase the amount to £292k.

Once this is done the credit cards are being chopped up and we will not use them again. This is guaranteed as I cannot go through this again, but my fear is that with the payments of the second charge being circa £1,900 if our mortgage payments go up to £2,000 (it is currently £765.23) a month as a rough guess we will be left with roughly £1,000 a month for everything else, when we need circa £1,500.

Am I best to look at doing a DMP on the unsecured debt I currently have rather than the higher second charge? My fear is that if I go down that route, when my mortgage comes off its fixed rate in September I will have screwed myself with that, but equally with the second charge I could also be doing that.

We have more equity in the house than its value so I want to maximise that, but just don’t know the best way to do it, without selling it and downsizing.

One other thing to consider is whilst rather morbid I will within the next 20 years maximum inherit enough money to cover the mortgage amount and second charge, which was always our repayment plan.

Any advice greatly appreciated! Stepchange recommend the DMP but our mortgage broker recommends second charge and I feel they both have vested interests. I know people advise against transferring unsecured debt to secured as it takes longer to pay off, but it also feels like the more sensible option to me rather than having the DMP affect me getting our remortgage in September.

elsien

s3nf said:

I am currently in a situation, which I am quite scared about to be frank. I have never thought of ourselves as living beyond our means, but recent events would state that we have been doing it for years and now I feel trapped. I am trying to work out how to move forwards without screwing myself over further and getting in to more trouble down the line. I fear that everyone that I talk to from a financial stand point has their own interests at heart and not mine, so I hoping you can share some useful advice.

We moved in to our home in August 2019 and were fortunate enough to have a large deposit. The house was purchased for £1,055,000 (it is now valued at £1,250,000) and we have an interest only fixed mortgage for £400,995. The house required some work doing to it when we moved in and as a result took out loans to do this. In order to consolidate them we took out a Second Charge for around about £95,000.00. My wife and I have pretty much consistently lived on credit cards which are in my name (she doesn’t work) and I have always made over payments to keep clearing them down, but they have a habit of running away with us. They probably aren’t the best credit cards for interest, but had good perks (BA Amex, BA Barclaycard & NatWest). Fast forward a couple of years and the Second Charge ended it’s fixed rate. Our mortgage broker suggested we move to another lender and borrow more to consolidate new loans and credit card debt, so we did this and borrowed £166,706. The mortgage brokers advice at the time was do it for 2 years and then it will end at the same time as your main mortgage, you will be earning more and can just wrap it in to one mortgage.

End of February this year and I am in the US for work but my wife opens a letter from our second charge provider saying our fixed rate has ended and we are now on a variable rate. This means payments have gone from £870.76 to £1,346.09. This was a major panic as came completely out of the blue. I guess I should have been more on it, but I had assumed it came up at the same time as our Mortgage, which cannot be moved without early repayment fees of around £9,000 until September. This has now become unaffordable.

Since taking it out, we have spent on the credit cards as before and then I have got panicked as they grew so took out loans to pay them off so that the interest was lower. The disposable income in our account got less and less so the spending had to keep on going on the credit cards. 

In summary, we now have around £110k in debt on loans and credit card debt of £35k. 

Our mortgage broker has asked us to calculate how much we have spent on the house since purchasing it and I did this yesterday, it is £150k as they believe that our current second charge provider will increase the amount to £292k.

Once this is done the credit cards are being chopped up and we will not use them again. This is guaranteed as I cannot go through this again, but my fear is that with the payments of the second charge being circa £1,900 if our mortgage payments go up to £2,000 (it is currently £765.23) a month as a rough guess we will be left with roughly £1,000 a month for everything else, when we need circa £1,500.

Am I best to look at doing a DMP on the unsecured debt I currently have rather than the higher second charge? My fear is that if I go down that route, when my mortgage comes off its fixed rate in September I will have screwed myself with that, but equally with the second charge I could also be doing that.

We have more equity in the house than its value so I want to maximise that, but just don’t know the best way to do it, without selling it and downsizing.

One other thing to consider is whilst rather morbid I will within the next 20 years maximum inherit enough money to cover the mortgage amount and second charge, which was always our repayment plan.

Any advice greatly appreciated! Stepchange recommend the DMP but our mortgage broker recommends second charge and I feel they both have vested interests. I know people advise against transferring unsecured debt to secured as it takes longer to pay off, but it also feels like the more sensible option to me rather than having the DMP affect me getting our remortgage in September.

I’m sorry to say it, but a potential inheritance is not guaranteed and should not be part of your long-term repayment of the mortgage plans.

Any number of factors could kick into play before that which means that no money comes your way. Care costs, divorce or remarriage of the testator, family bust up, change of will. I really would suggest that your future plans include how  you are going to pay your own mortgage off then anything inherited comes as a bonus. 
I was always verbally promised a large sum from my grandmother’s house after she passed away - her final will said otherwise. Wasn’t  problem for me because I wasn’t relying on it but it would have been difficult if I had been. 

Sly72

DONT transfer unsecured debt to secured I did that and regreat it. Lucky for me all sorted in 2 yrs but they never added the debet to mortage deeds for what ever reason.