To use the AIBU board for mortgage advice?

[Bazoo23]

I know I am 😂

I recently saw a mortgage adviser to discuss selling our current home and buying new. All good with income, credit check, have decent deposit.
However apparently our outgoings may be a sticking point. We have a personal loan, car finance, credit card and a few store cards argos etc. These combined are apparently coming up as a concern. While its not a no it's also not a yes as yet.
The mortgage advisor advised us to look into borrowing a lump sum such as 10/15k to pay these all off and then we will just have one monthly outgoing for 8 years. She did some calculations and we would be looking at £180 p/m which is lower than our car finance alone. She said if we did this about 6 months before putting in for the mortgage again it should pass with no issues. There is no rush as the house we want isnt even built yet and only requires a reservation fee.

What's everyone's views on this?

There is a money section on MN

Knight

There is indeed and you die a slow painful death waiting for a response.

Thanks though

I think it sounds sensible. Consolidating debts means you have one payment, one interest rate etc. What is it you're unsure on?
I would think that she would know what she's talking about as a mortgage advisor.

Money Saving Expert has a very good debt free section. They often advise that consolidation isn't great as people usually carry on spending on the credit cards so then have a loan plus new debt. Best to address why you've built up the debts in the first place and start to save for a house once you have an emergency fund.

Thanks tea, she gave the advice "off the record" so to speak, I think it sounds sensible. Just sounds almost too good to be true, I wondered if there was some drawback I was missing

Before you proceed check if the adviser is getting a fee from the debt consolidation company!

Lightsabre
Thanks. I dont really see it as being in debt in a bad way as we manage the payments comfortably, have never missed etc. Definitely wouldnt spend on the credit cards again, would cut it up were almost free of nursery fees and my partner has just started a much better paid job.
The plots on the development we want to buy on won't be there forever so dont want to wait years if you see what I mean.

One episode, this is a good point haha, she didn't name any companies. I've just looked on rbs and it came out the same as she said, so I would do it independently if so.

I'd double check the interest rates, debt is cheap at the moment so if your existing debt is a zero % then it might not be worth it BUT you've mention credit card, car finance and personal loans which will be advantageous if you can roll into one cheaper package - but I'd double check if there are early repayment penalties.

Timeforabiscuit

Yes, very good point about early repayment. I think the £15k would cover everything comfortably with plenty left over even with fees.

Just sounds almost too good to be true, I wondered if there was some drawback I was missing

You said 180p/m on a loan would be less than your car finance, but that's not surprising if you're comparing an 8-year loan to one that's presumably much shorter?

To work out if it makes sense for you to consolidate you need to work out the overall amount left to pay on your existing debts and compare it to the overall cost of the consolidation loan. If the overall cost of a consolidation loan works out less than the total cost of your remaining debts then it's a no brainer and will help lower your outgoing on the mortgage application. But if the overall cost of consolidating debts works out to be higher than your current debts then it's a harder decision.

In terms of financing a house move, it makes perfect sense that spreading your debt over a longer period of time (and therefore lowering the monthly payments) will make you more favourable for a mortgage. As you'll be lowering your monthly outgoings whilst maintaining the same income.

You don’t say how much you both earn or what percentage of that is your debt, but so many different debts looks like you’re just borrowing all over the place, struggling to live within your means and unreliable.,no one, for example has an Argos debt unless they need to.

So I think she’s given you good advice.

Curiosity

Thank you, this is pretty much what she said.

As everything else was coming up fine it was just the multiple outgoings so combining into one would solve that issue.

The car finance and loan are both over 5 years, so we were expecting to pay them for the foreseeable anyway so the 8 years doesnt phase me.

The car is 6.5k and the loan is 3k so with any repayment fees 15k should still cover it easily I would hope haha. The store cards are only a couple hundred combined as is the credit card (we only have one).

If the payments are more manageable and the APR isn’t hugely high, you have no reason to believe you won’t default, and you’re happy to extend over more years (for example the finance isn’t actually ending in 3 months) then it seems like a good option to me.

Any mortgage company is going to prefer you having fewer outgoings.

Bluntness, we both have excellent credit scores and pay all debts comfortably so I dont think that it looks like we're struggling to live.

Once you've got the mortgage you may want to then start overpaying the loan as the chances are you will need to change the car within the next 8 years.

Jackiethefart

Yes both the car finance and loan still have 3/4 years left. The others are minimal and we would be paying off soon anyway but makes sense to build them into the consolidation loan if we're getting one I think.

so with any repayment fees 15k should still cover it easily

It's definitely important to work out the exact cost of consolidating your outgoings. That is the overall cost if you let them run their course vs consolidating and paying any early repayment fees. Then you can work out exactly how much you'd need to borrow to do the consolidation.

Otherwise, you could potentially fall into a secondary trap where you end up borrowing more than you needed and increasing your debt unnecessarily.

Curiosity, I've requested a settlement fee from the car finance and will ask RBS tomorrow re the loan.
The others are minimal so could pay them without a loan if necessary. Thanks for the advice it makes perfect sense.

I used to be a mortgage underwriter and I wouldn't view a debt consolidation loan favourably if it was taken out so soon before a mortgage.

Also, you've listed 10k worth of debt but want to borrow 15k. That's not responsible. What would you spend the other 5k on?

Is your decent deposit savings or only equity? What would be the impact of putting 10k less into the next purchase and paying the debt off that way?

I would clarify with the broker if she is unable to get you a mortgage based on your current position and go from there.

Aros

Thanks that's really useful.
10k/15k are just the ballpark figures the mortgage broker gave me, would look at how much is needed before taking out.

It's mostly equity but we do have savings to add to it. If there wasnt a time limit I would pay debts with savings but obviously dont want to miss out on these plots.

Martin Lewis money saving expert website