Many people are will experience some level of being in debt at some point in their lives. Sometimes due to personal circumstances, this can spiral very quickly out of control from a situation that would’ve been manageable, into something that is not.
When this happens, it can feel that once you have paid all your bills at the start of the month, there is little or no disposable income left for you to enjoy.
One route out of this for some applicants is to consider a debt consolidation remortgage in Durham, as we will take a look at here in this case study.
You should think carefully before securing other debts against your home. By adding your unsecured debts to your mortgage, which is secured on your home, you are potentially putting your home at risk if you cannot make the required repayments.
Although the total monthly cost of servicing your debt may have reduced, the total cost of repayment may still have risen as the term of your mortgage is longer than it may have taken to repay the debts originally.
Layla was a divorcee living on her own after her children had moved out. Her debt had started to accumulate with legal bills after her divorce and increased gradually over the years, having to live on one income with unreliable maintenance from her ex.
Finally, her daughter became pregnant quite young, and as any mum would, she tried to help her out financially, although arguably, she couldn’t afford to do so.
Luckily Layla had paid her mortgage off years prior, so that asset was there for her to potentially borrow against. Her take-home pay was around £1100 per month, and her credit commitments were taking up the majority of this.
She was not missing any of her payments on credit commitments, but she didn’t have an emergency fund to rely on. Furthermore, whilst Layla’s credit score wasn’t actually that bad, she was no longer able to obtain new 0% credit cards to transfer her balances.
She was recommended to me to see if there were any options at her disposal in order to improve the quality of her financial and in turn, personal life.
When I met, Layla was feeling quite down about herself. She had cut back on all luxury spending, and it was evident that she was desperate to take the steps necessary to finally control her financial situation, before it got worse.
We explored the possibility of Layla taking out a personal loan, but her debts had mounted far too high for that to be a plausible solution.
Layla had no family members who were able to lend a helping hand, and downsizing was not an option. We agreed that the right way forward would be to remortgage her home in order to pay off the debts and reduce her outgoings.
We managed to find a lender to meet Layla’s requirements. Although it has to be said that due to her low income, it was hard to find a lender who was willing to lend the right amount.
We managed to get her an Agreement in Principle, but regrettably, when we submitted the formal mortgage application, it was declined.
The reason the case was declined was that the Underwriter, who assessed the situation, noticed that Layla had been using cards to pay off other cards and then not closing down the cards she had paid off.
They felt that because she had transferred balances, there was a high risk that she should re-offend and rack up debts again. Layla was noticeably and understandably devastated.
She understood the concerns, but in her eyes, she had accepted she had a problem, and by engaging us had taken a positive step to remedy her position.
To her, their risk was minimal – the loan to value was under 40%, she had never missed any payments, and if the remortgage was successful, she could be a very large £500pm better off.
All the above was of course correct, she did have a point, but clients don’t always appreciate that taking a property into possession is the last thing a lender wants or needs. Doing so reflects poorly on the numbers they are required to report each year.
In the event of repossession, they have the considerable hassle of securing the property, ensuring it, marketing it, selling it, and paying the surplus of equity (if any) back to the previous owner.
As such, if there is reasonable doubt, then an Underwriter has the discretion to decline an application, even if it is within their published lending criteria.
We pride ourselves on getting our recommendation right the first time, but this one didn’t work out that way due to the Underwriter’s adverse comments at the full application stage.
That being said, we knew this remortgage wasn’t as risky as the lender had made out, and it ought to be the right outcome for her, if we could find the right place to go with it.
Layla perhaps felt like she wanted to give up, but we went back to the drawing board to find a different mortgage lender. Sure enough, we found a new one who was willing to help.
Armed with the information we had from the previous lender, we were able to provide better supporting comments for the second roll of the dice, and luckily this time, it was successful.
Layla didn’t take this step lightly. She has now secured debt that was previously unsecured and may end up paying back more interest overall, depending on how quickly she can get the mortgage paid off.
Fortunately for Layla, in the short term, this has worked out pretty well. She now has had the burden of debt relieved from her shoulders, her credit score has improved, and she can save a little each month.
The savings we were able to help her make amounted to over 50% of her net take-home pay monthly and it has changed her life.
Upon completion of the remortgage, Layla cut up all her credit cards except one to use in emergencies only, and she has now got her financial life back on track.
If you are like Layla struggling with debt but are a homeowner with equity, please call us to discuss your options, ideally before the situation gets out of hand.
The earlier you take back control of your finances the better you will feel about things. Book a free appointment to speak with one of our expert mortgage advisors in Durham. We offer debt consolidation remortgage advice in Durham & surrounding areas.
Date Last Edited - 03/06/2020