In debt - how best to pay off credit cards and what to do re mortgage port

startingover2025

Dear all - I'm hoping for some insights into the best way to utilise a £20,000 loan from my stepfather, to enable us to port our mortgage. Here is the detail:
After years of over-spending which we have stopped, we have serious credit card debt, including one card on a payment plan wiht MBNA. The debts are all on high interest rates. In short, we owe approx this on credit cards

3200 MBNA (92 pm)
9890 Virgin (277 pm)
5000 HSBC (141 pm)
1100 Lloyds (42 pm) - one missed payment (now up to date)
1100 Tesco (37 pm) - one missed payment (now up to date)
11500 Virgin (husband) - on a payment plan which is renegotiated every two months (65 pm)
5000 Halifax (husband) (160 pm)

We also have a 15000 bank loan (325 pm), and a 50,000 second charge (second mortgage) - 465 pm. Our mortgage is with Natwest and on a good rate (1.19%); we pay 1500 a month.

We have a joint salary of 85,000 but with these payments and high travel costs into London there is very little spare every month. 

We applied to port our mortgage in December and move to a cheaper house in order to pay off the second charge and credit cards, and start building up some savings, but we were turned down. This was on the grounds that while our mortgage would remain the same at 330,000 (we would pay off the cards and second charge with the profit from the sale), the loan to value would change. They also had concerns over account conduct and flagged the fact that my husband's MBNA card is on a payment plan. 

Our advisor at Natwest told us to wait six months, conduct our accounts perfectly, then reapply for the port with a cheaper house. She couldn't guarantee that this would work, however. She also asked if we might be able to borrow some family money to pay off a chunk of the credit card debt. We talked to my stepfather about this and he has offered to loan us £20,000 - on the proviso that we pay it back at £400 a month. 

Can I ask what would give us the greatest chance of being able to port our current mortgage? My stepfather would like me to pay off all of my own credit cards and leave my husbands. That would mean we could easily afford the £400 repayments and have another £189 left over to attack one of my husband's credit cards. Or should we prioritise paying off my Virgin card (monthly repayment of 277) and my husband's MBNA (total debt 11,500; monthly repayment 65 on payment plan). I worry that if we do the latter option, we will actually be even worse off than we are now, due to the need for a £400 monthly repayment monthly to my stepfather - while it will help our credit, it will mean that we are a further £58 a month down. 

It would be brilliant to get some words of advice on this. We could of course sell, pay the ERC of £14,000 and apply for a new mortgage but wiht our credit history I don't think we could get a high street lender and we need as low an interest rate as possible. We live in the South East and property prices for a three bedroom house (we have two teenagers) are high... thankyou in advance for reading my long post!

ManyWays

You are on an amazingly low mortgage rate, so selling and paying an ERC charge would probably be a very poor idea, how long does this rate last for? Whatever you do now will have to work for you after the mortgage fix ends and your rate goes up a lot. 

I wonder if the Natwest adviser actually meant asking relatives for a gift, not a loan. I don't think you can afford to pay your father in law £400 a month

Would this cheaper house also be smaller, because another alternative might be to get a lodger if you have a spare room at the moment? 

I am tagging @sourcrates because he can move this thread over to the Debt free wannabee board, I think you have a massive debt problem and need to consider your situation from that point of view. 

Brie

I've jumped in and moved the thread.

Am I reading things correctly that you want to add your credit card debts to your mortgage?!  Please don't.  It makes unsecured debt secured and may cause issues further down the line.  And banks really don't like it because the know how bad it is for so many people.

Your stepfather is on the right line, in my opinion, of clearing your credit cards which makes paying off your OH's much easier.  I get why he's saying yours and not your OH's as you're his family and OH is a step too far.  But this would only work if you get the money as an outright gift and get it soon.  You might agree that when the time comes any inheritance is £20k less rather than it being considered a loan and therefore just a different debt.  

Of course once you do get his money you might do as you wish with it and simply pay off whatever CCs have the highest interest rate as they are costing you the most money.  But if you do just pay your CCs again start with the highest interest rate and work your way down from there.  

There is the issue for the bank too that OH is on a repayment plan which is likely to no even be covering normal interest payments on his MBNA.  That would be a red flag.   To counterbalance this I'd suggest that OH constantly reduces his card limit so banks can see he won't be able to run up more debt when the card is paid.  Maybe you need to do similar - get rid of a couple of cards altogether and lower the limit on the others.  Also check your credit reports to see what other credit you have and/or are using.  Overdrafts, phone contracts, monthly paid car insurance.  The less credit you have available the less risk you are and more likely to get the new mortgage.

EssexHebridean

First step, SOA (statement of Affairs) as that is the only way you can really see how your budget and income/expenditure is working. It’s brilliant that you have started tackling the debt, but it does sound like you may not be doing so in a particularly structured way right now. 

Generally speaking taking unsecured consumer debt and changing it to secured is a really poor idea - and if it means giving up a very keen mortgage rate that may be even less of a good idea. You may be better to wait out the cheap rate, hitting the debt as hard as you can in the interim, and then look at making your move when the rate is naturally coming to an end anyway - BUT you still may have issues getting lending in a new property if your credit files are still in a poor state. 

My suggestion would be to first off get that SOA done (the link is in my signature below, or in the sticky post at the top of the board)  and post that in here so we can see if there are any savings that you might have missed. Use the “format for MSE” option, and remember to make it accurate to the way things are right now - an “aspirational SOA” is no help to you at all! 

I take it you have used the MSE credit club or similar to establish whether you are eligible for any 0% balance transfer cards? (Although from what you have said that might be doubtful). 

Your plan to use the loan from your stepfather is likely to fail as soon as you have to declare the repayments to your lender - they tend not to like arrangements like that over much I’m afraid! 

startingover2025

Thankyou everyone. I will reply in greater detail later but I have a couple of questions - @EssexHebridean @Brie he has transferred the loan to my bank account this evening. I know Natwest will go through our bank accounts when we come to port, and they will see that I have a regular payment going out to my stepfather. Would it be an option to say this is an informal arrangement, and we pay a sum over to him when we can? So it is a gift in essence, but a gift that we repay when we can. The alternative is not to accept the loan, which means our situation will be no different at the next port application. If we accepted the 20,000, we could pay off my credit cards, and pay down the MBNA card which is on a payment plan by an additional 187 a month, though the card would remain on a payment plan. Thankyou! I will post an SOA.

400ixl

A gift cannot be a loan, he will have to be prepared to formally declare he has no interest in the money once it is with you and you will not be paying anything back.

So unless he is willing to not get any payment from you for months until the whole mortgage situation is sorted then you can't informally call it a gift as there will be repayments on record.

EssexHebridean

You seemed fairly clear on the £400 a month payment being what you would be making though, and if that is the case, telling your mortgage lender something different would in essence be mortgage fraud - not a route I’d want to take! 

I wouldn’t be at all surprised if your lender wanted to treat this money in the same way as a gifted deposit if you suggested to them it was a gift - and if that is the case, your stepfather will be required to give a statement confirming that he has no expectation of receiving the money back, and that he will have no interest in the property. 

TheAble

You'll incur a lot of costs moving house. Viz., agency fees, solicitors' fees, stamp duty, removers. Plus the fact you will be living in a smaller property. I just wonder if you are making the right decision.

I've known people by the way who have gone down this path. Got into debt, downsized, got into debt again, downsized and so on until there was nothing left. Interestingly I think they're still in denial about it. Anyway, I'm not suggesting you will necessarily do the same but since your motivation would appear to be debt/historical spending problems the risk may still be there.

I'd suggest, put that 20k on ice just for the time being and don't jump into anything. Let's take a look at the soa first as this will present a clearer picture.

ManyWays

 Would it be an option to say this is an informal arrangement, and we pay a sum over to him when we can? 
A bank is likely to take the view that if it looks like a duck, walks like a duck and quacks like a duck... that that is a loan you repaying.  

When does your current mortgage fix end? 

This is a crucial question, dont get lost in the details of how best to use this money from your stepfather right now, you have to have a plan that will work when the mortgage rate goes up. Otherwise you may end up in even more of a mess, at the moment all your unsecured debts can go into a debt management plan, but that isn't possible if you need repay your stepfather £400 a month

Hoenir

The issue with the mortgage port is that the current product will eventually come to the end of the fixed term. You'll then be exposed to the cold winds of the current interest rates. Increasing your outgoings sizably. 

startingover2025

Thankyou everyone. @TheAble I will post an SOA in the morning, this isn't something I had considered. @ManyWays the fixed term ends in Feb 27. One of the reasons for moving now and porting the mortgage is because we will struggle to afford our mortgage repayments when we move off the fixed rate, as repayments will increase by at least 500-600 a month. If we port the mortgage to a cheaper property, and do this before Feb 27; pay off our credit cards and the second charge with some of the profit we make from our house, then we will have more capacity to afford this. With our credit history I also have concerns that we will get another mortgage from a high street lender, so we need to stay with NatWest and rate switch at the end of our fixed term - another reason for the port. Thankyou - I hope this gives a bit of clarity but will post an SOA.