We know that many people are, to a greater or lesser extent in debt at some point in their lives. Sometimes due to personal circumstances, this can spiral out of control. 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.
A common route that most applicants choose to go down is a debt consolidation remortgage. As an expert Mortgage Broker in Liverpool, we have chosen to explore a case study on debt consolidation.
Julia had been through a divorce and her children had moved out to start their own lives. Her debt had started to build up with legal bills after her divorce and slowly increased 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 daughter out financially, even though she couldn’t really afford it.
Luckily Julia had paid her mortgage off some years ago so that asset was there to potentially borrow against. Her take-home pay was £1100 per month, and her credit commitments were taking up more than half of this.
She had not missed any payments on credit commitments, but she had no emergency fund, and while Julia’s credit score wasn’t too bad, she was no longer able to obtain new zero% credit cards to transfer her balances.
She was recommended to me to see if there were any options available to improve the quality of her financial life.
When I met, Julia was feeling quite low. She had cut back on all luxury spending, and it was evident that she was desperate to take ownership of her financial situation before it got any worse.
We explored the possibility of a personal loan, but the debts had mounted too high for that. Julia had no family members who were able to help; downsizing was not an option, and we agreed the right way forward would be to remortgage the house to pay off the debts and reduce her outgoings.
We managed to find a lender to meet Julia’s requirements. Although it has to be said given her low income, it was hard to find a lender who would lend her enough. 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 felt that because Julia had been using cards to pay off other cards and not then closing down the cards. When she had transferred balances, there was a high risk that she should re-offend and rack up debts again.
Julia was 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 whopping £500pm better off.
All the above was indeed correct, but clients don’t always appreciate that taking a property into possession is the last thing a lender wants or needs. It 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. However, we knew this remortgage wasn’t as risky as the lender had made out, and it ought to be the right outcome for her.
Julia perhaps felt like she wanted to give up, but we went back to the drawing board to find a different lender. Sure enough, we found one and 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.
Julia 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.
However, in the short term, this has worked well for her. 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, Julia 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 Julia struggling with debt but are a homeowner with equity please get in touch with us and we will see what we can do. We would rather that you contact us before the situation gets out of hand. The earlier you take back control of your finances the better you will feel about things. We offer debt consolidation Remortgage Advice in Liverpool & surrounding areas along with a free initial mortgage consultation.