Loan Secured Against House - Questions

corkyefes

Hi all,

To cut a long story short, myself and my wife have managed to wrack up £100k worth of debt, due to various issues (house rennovations, overspending, gambling (dont judge) etc etc). This £100k doesnt include our mortgage and it is built up of personal loans and credit cards.

We are currently paying nearly 2.5k a month out on debt, leaving us with £200 a month to live on (after all bills, food and mortgage paid etc) but we cannot carry on living like this.

I was speaking to a close friend and he has mentioned about getting a loan, which would be secured against the house, to consolidate all this debt into one lower payment (i understand means i would be paying this for longer term).

I've quickly looked into this and obviously not sure if we can get it, but effectivley subject to if and what i could get, i could potentially bring our monthly debt payments down by £1.5k (fairly life changing for us).

Now i fully understand the situation that if i dont pay the loan, then they will make us sell the house, but as ive been paying so much a month and managing to survive, we can afford to pay it.

Ive also worked out what would happen if say i lost my job and we would be ok for fair period of time to enable me to secure more work, so ive done all the calculations on that.

However, i have three questions about the loan…

• I would ideally like to borrow £100k, however I think we only have a maximum equity in our house of £75k - Is it likely i may only get approved for the equity value?

• Our currently mortage is 2 years into a 3 year deal and in 3 years, if we dont go into a new deal, our mortgage obviously goes up - Therefore would this secure loan effect our ability to tie ourselves into another mortgage deal with the same lender?

• I would like to pay things off in mine and my wifes name. Ive been told that if approved on these loans, they pay the debt for you, so i assume i can give them the details for what i would pay off in my name and what for my wife?

All replies appreciated, and like i say, please dont judge, just trying to get better.

retiredbanker1

You need proper financial advice.

I don't think you will get a mortgage to cover the whole debt if this is going to be more than the worth of the house.

Firstly get over to the debt free board and do a statement of affairs showing exactly where every penny of your money goes every month.

It might be that a debt management plan is the best way forward but I am no expert on this.

Good luck on your journey.

elsien

There are many people on this board who have gone down the debt consolidation route and ended up in an bigger mess.

Turning unsecured debt into secure debt and putting your home at risk when it’s not at risk now is probably not the best decision to be going on with. Unless your spending is really under control it is too easy to carry on over spending in the way that you have done in the past so you end up with a secured loan against your house and even more credit card debt.

Have you looked into other debt solutions which would allow you lower repayments without putting your house at risk?

Perhaps put an SOA up here so that people can comment based the details of your situation.

TadleyBaggie

Never convert an unsecured debt to a secured one.

corkyefes

Thanks for the comments….

We are not asking for a loan for the whole property value, just what equity we have in the house, which is about £75k, but ideally £100k if we can.

I fully appreciate peoples comments regarding getting into more mess, however we are now better with our over spending and havent over spent for months, but living with £200 surplus every month is making us miserable.

We honestly now dont live over the top, every penny we earn is on mortgage bills and debt.

We both work 40 hours a week, with a child so cannot just go out and earn more.

We dont have any car payments and we are both running cars that are paid off - and unfortunatley both cars are too old to sell to clear any debt.

We dont have any subscriptions, we scrimp and scape on our food bill. There is literally nothing we can cut out.

Cutting our bills down by £1500, if possible, would basically change our lives.

elsien

Which is why I asked what other debt solutions you have looked at first?

corkyefes

Honestly, im not sure what else is out there except a debt management, but i dont want to go down that route.

GrumpyDil

As has been suggested you will get better answers on the debt free forum so I'm going to report this to see if it will be moved.

If you are saying your house is worth saying £200k, you have a mortgage for £125k leaving you £75k in equity you will not be able to borrow that full £75k. Also note that turning unsecured debt into secured debt is generally considered a bad move as that potentially puts your house at risk, whereas as long as you keep servicing the mortgage your house will be safe.

See what the suggestions are on that forum as you may have more options than you think.

fatbelly

There are a load of strategies and the one you seem fixated on is likely to be a disaster.

We deal with this sort of thing every day on debt-free wannabe so the sensible thing would be to head over there.

gwynlas

There are advantages to a DMP such as getting interest frozen and having a structured timescale in order to pay off your debts. this can either be self managed or through an organisation such as Stepchange/

Securing debt on your home is always a bad idea as you would end up paying a fortune in interest

saajan_12

https://forums.moneysavingexpert.com/discussion/comment/81891746#Comment_81891746

We are not asking for a loan for the whole property value, just what equity we have in the house, which is about £75k, but ideally £100k if we can.

Forget £100k, you likely wouldn't get all of the £75k either. The reason being house valuations are very inaccurate until you actually come to sell, plus if you don't go willingly, it can be quite expensive for the lender to repossess etc. So they usually want to keep a buffer generally 5-10% of the house value vs the TOTAL secured dept.

Eg if your house was worth 400k and you had a 325k mortgage, then say they want a 10% buffer (aka 90% LTV) they'd only lend you 35k. Because a lender would know there might be 40k lost in just repossession plus fluctuations in the value, then your mortgage lender would take 325k, before they can recover.

So its unlikely to help much, not to mention the pitfalls of consolidating debt, and then building up the credit cards again when the next emergency hits.