Move credit card debt to mortgage?

ronradioron · 16 November 2019 at 11:05PM

Hi, thanks in advance for advice.

My wife and I have mortgage of £163k on house currently worth c. £385k (LTV 42%).
We are also servicing and (very slowly) repaying credit card debts of approx £40k between us, some on 0% rate but deals expired or expiring in the next few months.

Next year we plan to move house and expect to want to extend mortgage to approx £350k on £550k property. Combined income approx £100k so hopeful this will be achievable.

Current credit file is fair rating, with main negatives being high utilisation of available credit. No late payments or other adverse credit markers.

Looking at monthly finances it would seem sensible to approach our lender to extend our mortgage now and shift credit card debts onto the mortgage, become debt-free apart from that, and then build up credit rating with some disciplined monthly spending and repayment over the next 6 months, which leads to my question- this seems to be a win for reducing our interest on debt overall and monthly outgoings, and would seem likely to raise our credit worthiness, but is there likely to be any negative impact on borrowing more again next year to move house?

Thrugelmir · 16 November 2019 at 11:23PM

ronradioron wrote: »

We are also servicing and (very slowly) repaying credit card debts of approx £40k between us,

Given your household income. An underwriter my question the high level of debt you've built up and the slow repayment there of. (Lenders will analyse the previous 60 months recorded history). Would debt consolidation actually address the underlying issues. Statistically it doesn't. In the main people go onto reoffend again. Simply ending up being highly indebted yet again in the future. Underlying this is the fact that lenders are required by regulators to act responsibly. As an observation. The fact that you wish to consolidate the debt then borrow yet more next year suggests this to be the case,

Addressing the issues head on for a period. Would reflect greatly on the perceptions derived from your credit history.

enthusiasticsaver · 16 November 2019 at 11:39PM

If you have managed to build up £40k of credit card debt and are only repaying very slowly with a £163k mortgage then how do you expect to service a £350k mortgage?

In the vast majority of cases converting unsecured to secured debt and debt consolidation (both of which you are considering) is not recommended. First you are risking your home by putting it on your mortgage. Second, even if there is some short term relief by paying it over a longer period hopefully at a lower interest rate so lower repayments that also means it is more expensive. Paying £40k off on credit cards (even not on 0%) over 5 years will cost you much less than sticking it on a 25 year mortgage. Thirdly and most importantly it does not correct bad spending behaviour which is the reason for the debt in the first place. The relatively painless moving of the debt tricks the borrower into thinking they have solved the problem and they carry on spending as before so before long they have the higher mortgage and credit card debt built up again. Rarely works and most people bitterly regret it if the stories on the DFW Forum are typical.

I would recommend you sort the credit card debt out first before extending your mortgage (which will be reduced if you have debt anyway). Post on the DFW Forum, set up a proper budget and start to make reducing the credit card debts a priority.

getmore4less · 17 November 2019 at 12:40AM

With £5.5k per month coming in and a small mortgage* where is the rest going if the debt is only going down slowly?

*What rate and term is the mortgage.

Review your numbers

£220k equity £40k debt min £20k costs £550k purchase.

Mortgage needed. £390k.

ronradioron · 17 November 2019 at 12:47AM

Thanks for the advice. Debt largely built up earlier in career living in London and earning lower salaries than now, stable and slowly reducing for some time now. Monthly budgeting for servicing larger mortgage assumes consolidating debt at that stage so essentially replacing credit card repayments with single mortgage payment, so query was mainly on timing for that, but I take your points on history and perceived reoffending risk.

Is there any benefit in discussing openly with lender (Chelsea) at this stage to see what they would lend based on current circumstances and what their opinion of various options would be, or do they not engage on hypotheticals generally?

getmore4less · 17 November 2019 at 12:54AM

You need a good review of where all your money is going

What does the budget look like
Do it on the SOA format.
https://www.lemonfool.co.uk/financecalculators/soa.php

ronradioron · 17 November 2019 at 12:55AM

getmore4less wrote: »

With £5.5k per month coming in and a small mortgage* where is the rest going if the debt is only going down slowly?

What rate and term is the mortgage.

Review your numbers

£220k equity £40k debt min £20k costs £550k purchase.

Mortgage needed. £390k.

The fact I don’t have a quick answer to that tells me what I’m going to be doing this week :-)

Mortgage 18.5 years remaining on 1.99% fixed until July 2023.

Good point on numbers, the back of your envelope is clearly better than mine!

ronradioron · 17 November 2019 at 12:57AM

getmore4less wrote: »

You need a good review of where all your money is going

What does the budget look like
Do it on the SOA format.

Thanks for this, very useful, will spend some time on this.

System · 17 November 2019 at 11:35AM

You've made it clear that managing interest rates is your primary method of coping with such a high debt (and yes, that's a high credit card debt, despite your good income in comparison). It also indicates that you're somehow comfortable with this amount of debt and don't really see it as a "problem" - just something to be managed - and that extending the mortgage is just a bit of a cost-saving exercise to you.

The fact your credit file is only showing "fair" should be a wake-up call. Lenders now believe you're a risk to lend to, because historically, others in your situation struggle or default.

Even now you're thinking: She doesn't know me! I'll be fine. I'm not like everyone else! I can handle this debt. Keeping up with repayments is no problem.

That there is your biggest issue and the reason you should be wary. Unsecured debt actually should be considered an urgent problem. You shouldn't be "comfortable" with it at all.

It's not a criticism of your financial savvy here

But your primary focus should be tackling the spending itself. This is why you've been encouraged to do a SOA. Share it with your other half too and have the tough conversation about the fact that spending habits need to change before you can increase your mortgage.

ronradioron · 17 November 2019 at 11:56AM

You’ll be pleased to hear my wife and I were up till 2.30 this morning analysing our spending and have a long list of money saving tactics. Thanks all.

katsu · 17 November 2019 at 2:16PM

Well done Ron... If you'd like to share your ideas here they might inspire others and people will also give you feedback.

Good luck with your plans to clear your debts. If you can ensure your debt is going down each month at a faster rate then you'll be in a much better position when it comes to your remortgage.

Move credit card debt to mortgage?

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