Is there a way to take cash out of a mortgage without downsizing - under 55

Cruixer

I am trying to advise a friend who in summary has a mortgage they can't afford, and owes a private loan of about £10k to a relative.

Plan A is to downsize by about £50k to reduce the mortgage payment, but my concern is that with stamp duty, legal and estate agent fees, that's a minimum of £10k of that lost in the move. I'm also concerned that a hurried move now would result in the wrong property, resulting in another £10k+ lost to an additional move within the next year or so.

I suspect that if I look at my friends mortgage details with her, I could probably help her to find a better deal that might reduce the monthly payments to a manageable amount. However, that doesn't resolve the issue of the £10k loan that she is overdue in repaying. 

I know that there are equity release mortgages for the over 55's, but this person is on the other side of 50, and there is probably not a huge amount of equity to release.

This is not someone who has the discipline to use a lot of the tricks that would normally be discussed on this site, like 0% credit cards etc, so she needs a way to pay back the money owed to the relative and either incorporate that into the mortgage payment or another loan, but I don't know how likely she is to get a bank loan to pay back another person!

I realise its unlikely, but wondering if there are any other options I haven't considered? I've always been more of a saver than a borrower, other than mortgages obviously, so I am a bit out of my comfort zone advising on this.

Hoenir

If they are struggling to afford the mortgage. Then applications for any further lines of credit are likely to be declined. 

Another option would be to sell the property and rent. This would allow for a total reset, i.e. clear all current debts. 

Cruixer

Hoenir said:

If they are struggling to afford the mortgage. Then applications for any further lines of credit are likely to be declined.

Agreed, but I suspect the mortgage payment can be reduce. I suspect she probably has a bad deal, from when rates were at their peak.

Hoenir said:

Another option would be to sell the property and rent. This would allow for a total reset, i.e. clear all current debts. 

Don't think that would make much sense in this situation. I think downsizing would probably resolve this, its just that the cost of moving would be more than the money owed, although this might end up being the only option.

Mark_d

Downsizing by a small amount is not a sensible option.  As you recognise, there would be a number of fees to pay and it adds up to a significant amount.

Remortgaging will cost maybe £1000 in fees and therefore even with a lower mortgage rate you might not be in a better position.

With not much equity in the property, an interest-only mortgage is not an option.

So your friend needs an extra £200 per month?  Perhaps getting a second job is something to consider.  Cutting costs is something to be explored too - both in terms of regular bills and also adhoc spending.

kempiejon

Cruixer said:

I am trying to advise a friend who in summary has a mortgage they can't afford, and owes a private loan of about £10k to a relative..../

This is not someone who has the discipline to use a lot of the tricks that would normally be discussed on this site, like 0% credit cards etc, so she needs a way to pay back the money owed to the relative and either incorporate that into the mortgage payment or another loan, but I don't know how likely she is to get a bank loan to pay back another person!

Seems a pretty knotty problem. If they do not have the discipline to manage their financial affairs I don't know there is a solution, they have a mortgage they cannot afford have borrowed on the "black market" and owe a relative £10k and are behind on those payments. There isn't really a financial product to save them. Perhaps remortgaging to a longer term? Overall this will cost them more money though and they might not be able to get a deal.

Like all in these sorts of predicaments address the problem of living within their means. Now. Set a budget and stick to it. Look at reduction in expenditure and increasing income. Over-time, part time job, de clutter and ebay/vinted. switch broadband and insurances etc.

As an example I helped a mate some years back and when we went through their bank statement I was able to convince them to get rid of quite a few direct debts and save them over £100 per month.
Several subscription to TV/movie providers, beer club, mail order monthly bog roll for gods sake.

Cruixer

Mark_d said:

Downsizing by a small amount is not a sensible option.  As you recognise, there would be a number of fees to pay and it adds up to a significant amount.

Remortgaging will cost maybe £1000 in fees and therefore even with a lower mortgage rate you might not be in a better position.

With not much equity in the property, an interest-only mortgage is not an option.

So your friend needs an extra £200 per month?  Perhaps getting a second job is something to consider.  Cutting costs is something to be explored too - both in terms of regular bills and also adhoc spending.

All good advice. This confirms what I was already thinking, that downsizing would have to be significant to be worth doing at all.

I suspect that spending and discipline is a big issue, and not one that I can fix, I think that the best thing I can hope to do is somehow prevent her from making an expensive move that doesn't really improve the situation.

Hoenir

Hoenir said:

Another option would be to sell the property and rent. This would allow for a total reset, i.e. clear all current debts. 

Don't think that would make much sense in this situation. I think downsizing would probably resolve this, its just that the cost of moving would be more than the money owed, although this might end up being the only option.

To make an informed decision one would need to have an understanding of the entire financial picture. 

Cruixer

kempiejon said:

Seems a pretty knotty problem. If they do not have the discipline to manage their financial affairs I don't know there is a solution, they have a mortgage they cannot afford have borrowed on the "black market" and owe a relative £10k and are behind on those payments. There isn't really a financial product to save them. Perhaps remortgaging to a longer term? Overall this will cost them more money though and they might not be able to get a deal.

Like all in these sorts of predicaments address the problem of living within their means. Now. Set a budget and stick to it. Look at reduction in expenditure and increasing income. Over-time, part time job, de clutter and ebay/vinted. switch broadband and insurances etc.

As an example I helped a mate some years back and when we went through their bank statement I was able to convince them to get rid of quite a few direct debts and save them over £100 per month.
Several subscription to TV/movie providers, beer club, mail order monthly bog roll for gods sake.

Yes, I think if I could get full access to the finances and be sure that she would follow my advice, I could probably sort it out, but I am not sure how realistic that is. The loan was supposed to be help in order to buy this house, but I don't think either party thought through how the loan would be paid back and in some ways the well meaning relative has made things worse by enabling a house purchase that wasn't affordable. 

To be fair, the current situation is not entirely of her own making, and some of the bad decision making came from the urgency of buying while getting out of an abusive relationship, but there is definitely an element of not living within means, that only change of behaviours can resolve.

kingstreet

If converting unsecured debt to secured makes any sense, a remortgage may be the answer if affordability is provable. Many lenders offer free legals, free valuation etc so it may be cost-neutral to change lenders and increase the mortgage by the amount required. Could be even more helpful if the rate for the total borrowings could be reduced.

Newbie_John

If you say spending and financial discipline is an issue - so what would happen if this person somehow released £30k  from their mortgage? It would probably go quickly and you'll be back here in few years time.

What rates are they on? How long is the fix? How much they're short of each month?
It all really depends on above factors, because if they on low rate let's say 2% then it will only get worse, if they only short these £200 they can really just look into their spending/earning ratio. If we're talking about much higher numbers then as suggested above - sell and take break - rent. If they high rate fix is due to expire in a year - they should make a good plan how to limit their spending and hope for achieving lower rate in a year time.

Based on the little facts mentioned, remortaging doesn't sound like an option here.

Cruixer

Newbie_John said:

If you say spending and financial discipline is an issue - so what would happen if this person somehow released £30k  from their mortgage? It would probably go quickly and you'll be back here in few years time.

I wouldn't be advising this person to release that much cash, its more about releasing ~£10k so that commitment can be resolved, and reducing the monthly outgoings.

Newbie_John said:

What rates are they on? How long is the fix? How much they're short of each month?
It all really depends on above factors, because if they on low rate let's say 2% then it will only get worse, if they only short these £200 they can really just look into their spending/earning ratio. If we're talking about much higher numbers then as suggested above - sell and take break - rent. If they high rate fix is due to expire in a year - they should make a good plan how to limit their spending and hope for achieving lower rate in a year time.

Based on the little facts mentioned, remortaging doesn't sound like an option here.

I don't have all of these details at the moment, I had planned to sit down with her and get everything into a spreadsheet to compare scenarios. I understand mortgages and rates etc well enough to be able to work out whether she can reduce her payments, the part I am not sure on is how/if she could take £10k out in the process, without sellin the house.