Debt consolidation and remortgaging

[jalop]

Hi
Advice please.
Our current mortgage deal ends in 6 months (5 year fixed on our first home).
Our house value has increased by around £50-60k
We are looking on borrowing more on the house to pay off some debts I.e loans, car finance (both have good credit, no missed payments/arrears on anything) to free up our outgoings as things are getting a little tight with cost of living increases.

We also would like to do an orangery at the back to add dining space but our priority at the moment is reducing the outgoings.

I'm looking for people's experiences/views on this. I'm speaking to a mortgage advisor in a few weeks so just preparing really. Has anyone remortgaged and borrowed extra to create some breathing space? Any advice?

Converting unsecured debt into a secured debt is a bad idea. Research it.

1. you will pay far far more in long run
2. you will feel mistakenly light and much as you may decide otherwise your “breathing room” will expand into lifestyle bloat and one day some more debt because it all looks clean and tidy now because you have converted visible unsecured debt into brick and mortar.
3. Borrowing more now to build stuff and decrease equity at the interest rates of today is mad.

And if believing me as an internet stranger is not feasible this is what Step Change has to say about it (screengrab attached) and link is here

I would say borrowing extra at what is likely to be a much higher interest rate than what you fixed at 4.5 years ago is bad idea especially when you have already got debts and just fancy an orangery which i doubt is essential.

Never, never make unsecured debt secured. There are ways out of unsecured debt ( freezing interest) but secured you can lose your home.

Debt consolidation rarely works out well in the long run. Even when you're taking on an unsecured DCL.

To turn unsecured debt into secured debt against your home is madness though. There's no reason good enough to do it.

Very glad to see PP coming and saying same as I said. I was particularly startled at your apparent casualness about the “breathing room” and the orangery comment, especially in the times we are living through :/

When you remortgage, your mortgage costs are going to go up anyway. Adding extra to that sounds like a bad plan.

Apart from the car loans, how did the other debt come about? Can you pay off your loans aggressively before your remortgage? Do you have a good budget you work to?

By your own admission things are getting tight and you have car, loans and credit card debts, yet you want to build an orangery on your house for a better dining experience?!? I've heard some nonsense on here, but this is ridiculous. You need to readjust your tolerance to debt and park the luxuries until you can actually afford them

@Babyroobs right.. as I said, it is not a priority but just thought I would put it in there to give people an idea of what our hopes are for this property prior to people's input

@FawltyTower so why is it an option? Just out of curiosity. I get what people are saying and appreciate it but if there's no reason good enough to do it then why do people do it? Because I know a few who have (these people bought council houses at like 25k and the equity in the house was massive). So would it only be a case of if you have built like a significant amount of equity?

@Combusting casualness? I asked a question on an online forum... how did you want me to ask the question? As said above, the orangery is not a priority. I mentioned it to give an idea into what we envisage for the future. Doesn't have to be right now or in a year or even 5 years. But that is the only thing we wish or need to do/invest into this property as it stands

if there's no reason good enough to do it then why do people do it?

They do it for the reason you’re doing it - because they realise they’ve overextended themselves, the debt payments are getting annoying and they want to wipe the slate clean and pretend the debt has disappeared.

The issue is that unless you fix the underlying spending patterns that led to the debts, it will happen again. You’ll get a new car loan, a new loan for the orangery, maybe some 0% finance on furniture or a new kitchen or bathroom or whatever. You'll remortgage and consolidate and so on it goes.

Then you’ve rolled up all that overspending into a bigger mortgage - you’re paying money every month but not decreasing your debts.

It’s short-term problem solving but it stores up long term problems.

I can tell you now that if we had consolidated my partners debts ( from a failed business) onto our mortgage as we were considering we would be homeless now.

Have a look on Money Saving Expert Debt Free Wanabee forum- everyone there will tell you never ever do this.

I work in mortgages, I can pretty much guarantee that when we get a remortgage application for debt consolidation that when you look at their credit file they did exactly the same thing previously. Borrowed extra repaid everything then racked it all up again
The only way to get out of debt and to stay out of debt is to repay it the hard way

Short term debt being consolidated into long term debt works well if you can get a significantly lower interest rate. Being concerned about the fact that it will ultimately cost more misses the point- a mortgage on a fixed interest rate (for instance a 10 year fixed) is essentially losing value over time. Taking some illustrative examples:

a £10k debt at 19% over 4 years will have cost around £14.5k by the time it’s paid off and costs around £300/month.

the same debt over 25 years at 4.5% will cost £16k. Which is a 33% increase in the cost of credit, but distributed over the course of 25 years is an increase in the cost of debt by 1.5% per year, which is extremely marginal.

what people have said is important though- don’t restructure short term debt into long term debt if you have structural debt issues, because all you will do is regenerate short term debt. If you have a structural debt problem, then sort your finances first. However, mortgages are very cheap sources of credit given that the value of money shrinks over time (inflation) and therefore fixed rate loans are losing value every year.

People do it because -

1. It feels like the debt has “disappeared” and become …. Your hallway/lounge walls/kitchen…
2. It feels light and fluffy for a while. Promises are made about not getting into debt again…
3. when a boiler breaks, and there’s all that unused credit sitting on that card.. and you can now afford some monthly commitment ….
4. and it’s been such an awful year and TUI are practically giving that holiday away it’s SUCH a good deal…..

and then one day …

@Hiddenmnetter thank you

I get what most are saying (although most have made assumptions). We don't have particular spending habits. We don't have credit card debts. We both have 2 each and I use mine for food shopping and pay it every month just to keep it 'active'. Our other debts (2 loans) are due to external circumstances that were out of our control. The first one our dog had to have £7000 surgery on his leg that his insurance miraculously wormed their way out of paying. And the second one was due to my husbands accountant basically effing him over. It's funny how people are quick to judge though when they see we have loans and tell us to 'park the luxuries aside until we can afford them' when they don't know anything about our lifestyle whatsoever and have clearly misunderstood the question. We don't have a flash car. We don't buy expensive clothes/shoes/furniture so I don't know how much I'm supposed to put aside right now. Anyway, rant over. I guess I'll just speak with the mortgage advisor and see what's to offer

Hi OP,

I'm in a similar situation and was dead-set on debt consolidation through remo next year when our fixed rate ends, but this thread has given me food for thought.

We ran up debt over a number of years going through IVF. I know not everyone will agree with using loans etc for fertility treatments but we were desperate and unfortunately it took a long, long time before things finally worked out for us.

Anyway, I'll be watching this thread with interest and have definitely taken some comments on board myself.

Come back and let us know what your advisor says

Good luck!

It doesn't matter why you are in debt, whatever the reason don't bloody make it secured on your home. You can lose your home if you can't pay your mortgage.

You have unfortunately missed the point that people are making.

The distinction you are highlighting between 1) “frivolous” or “impulsive” debt and 2) “shit happened” debt is not the point of relevance here.

The point is that you are taking the “shit happened” debt and converting it into walls and floors and the roof over your head. The shit will “disappear”, you will breathe, and then one day shit will, again, happen.

@Combusting no I haven't missed the point. I understand what people are saying. But when people say this is ridiculous and suggest that I will over spend "again", I wanted to be clear that that's not the case or the reason for our debts. One even suggested I had credit card debts when I said nothing of the sort 🥴 I guess that's the nature of Mumsnet though and I probably came to the wrong place for non-judgmental advice/experiences/views

Coming into this conversation rather late OP, so speed read the responses. Let's say you consolidated the debts, what would happen if another unfortunate financial incident came long. You need £8k for your roof/boiler/ car or whatever. How would you pay for that? I think the point is you would end up with another loan, back to square one. You need to get some savings behind you.

As long as you understand that in the long run you'll pay more for the debt you're consolidating, I don't think it's a ridiculous idea provided you have a decent amount of equity in your home. People fund extensions and home improvements through increasing their mortgage all the time, most people don't have £100k or whatever an extension costs siting in the bank.

I did it. Personal circumstances changed unexpectedly, and I took out a small additional mortgage. I then cancelled all but one credit card, which I reduced to a £500 limit for emergencies and online purchases only. It still takes an iron will and lots of planning not to get into debt. I got a slightly higher paying job, too, which helps. I overpay the additional mortgage by £50 each month to try and bring it down quickly. It's still bloody hard work but has brought me some breathing space.

@LondonLovie yes that is our plan if we decide to do it. To get a decent amount savings together. We can't do that right now unfortunately so would be screwed if that happened (because the roof/boiler/car would happen regardless right?). And that is my thinking behind all this. Do we continue to struggle for the next few years and be better off in the long run but risk having another accident/breakdown or whatever? Or do we wipe the slate clean and save as much as we can and be able to sleep at night knowing we could pay for such emergencies/breakdowns if they happened and not have to get into further debt for it?

Only one person in the thread mentioned credit cards, or luxuries. Don’t take that to heart- you didn’t give any idea of what debt you had/why the debt existed (except for car finance), and credit card debt is no better or worse than a loan. You’ve obviously had a couple of unfortunate financial things happen.

It’s good that you know why the debt exists. In general, having a budget that works plus emergency savings is the key to staying out of debt, so don’t be offended by that advice. Also in general, increasing a mortgage to pay off consumer debt is not a good idea. It might be a good idea in your circumstances if it means you can start to save up an emergency fund so that you don’t need credit in the future, for instance. So just think carefully before you decide, that’s all.

@BlueRabbitYellow thank you for sharing your experience with this. Were your outgoings a significant amount beforehand? And did the increase in mortgage payments give you a decent amount of breathing space in comparison?