Updated: February 17, 2022

Getting a Debt Consolidation Remortgage

Considering a debt consolidation mortgage? Our expert guide will tell you the pros, cons, alternatives & exactly how you can remortgage for debt consolidation.

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Pete Mugleston

Author: Pete Mugleston - Mortgage Expert

Updated: February 17, 2022

If you’re an existing homeowner with other escalating debts and wondering how you’ll ever be able to repay it all, then a debt consolidation mortgage could be an option worth serious consideration.

By following this guide, you’ll have a better understanding of whether remortgaging to repay your debts is a valid option for you, what all the potential drawbacks are and where to look for any help or guidance you might need.

What is a debt consolidation mortgage?

Remortgaging for the purpose of debt consolidation enables an existing homeowner to take all their other outstanding debts from credit cards, store cards, car and personal loans and combine them into one single monthly loan repayment.

Your chosen lender will assess the level of debt by looking at your credit report. They will get an up-to-date valuation of your property to help them decide whether there is sufficient equity in the property, enabling them to provide enough new borrowing to cover all other debts.

You will usually be asked to sign legal paperwork where you commit to paying off the existing debts in full as soon as the mortgage is completed.

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How to remortgage with debt consolidation

Arranging a debt consolidation mortgage is the same as any other remortgaging process but with additional paperwork relating to the debts you’re paying off.

By following these simple steps you can make the process much more straightforward:

  1. Get your documentation in order. You’ll need to supply: 3 months’ bank statements, photo ID, proof of income, proof of address and of course, the correctly completed application form. In addition, you will need to disclose details of all the debts you intend to pay off from the remortgage with their current outstanding balances. Our mortgage application guide will help give you a clearer idea of what’s needed.
  2. Understand lenders criteria. Generally lenders will need information about the following to make an assessment:
    • Your credit report
    • Your current debt level
    • Value of your property and the level of equity you have
    • How predictable your earnings are and the level of your disposable income relative to the additional borrowing you need
  3. Speak to a broker. Talking to an experienced debt consolidation mortgage broker will help improve your chances of getting the terms you need. A specialist will have access to the entire market allowing you to find the best possible deal.

Our free, broker-matching service will quickly assess your needs and circumstances to find you a mortgage expert who’s ideally placed to help you – make an enquiry now to get started today.

Is this possible with bad credit?

Yes, there are specialist lenders who can help with this. Typically, if you have defaulted on mortgage payments or run up other debts, you won’t be offered the most competitive deals that you might get if you have a clean credit record.

However, brokers who specialise in arranging mortgages for clients with bad credit know which lenders to approach, saving you time and frustration finding the best terms for your situation.

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Which lenders might offer these mortgages?

Several high street lenders such as TSB, Santander and Halifax offer debt consolidation mortgages but finding the right product for your circumstances can be time-consuming.

Some lenders may have tighter restrictions on the equity/loan to value (LTV) required for debt consolidation compared to standard remortgages as well as the overall amount of debt that’s acceptable.

Other lenders place restrictions on what you can do with the money raised. For example, TSB will not offer these mortgages where the money will be used to finance a business or a timeshare property.

Speaking to a broker first, rather than going directly to a lender, is a shrewd move in these circumstances. They will already know which lenders to approach and which to avoid.

Advantages and disadvantages

Whilst the idea of consolidating all your debts into a single monthly payment may be very attractive, it’s not necessarily the ‘no-brainer’ it may appear to be and might not be the right option for everyone.

For more detail on this, here’s a number of key pros and cons:

Advantages

  • Taking a remortgage with debt consolidation can reduce your overall monthly outgoings, leaving you with more disposable income.
  • Your credit report will be cleaner as all outstanding debts will be repaid and by keeping up with your new mortgage repayments your score will continue to improve
  • Having just one monthly payment makes it much easier to manage your finances

Disadvantages

  • Your home may be at risk if you do not keep up with repayments on your mortgage, so you need to be certain you can comfortably afford the new amount each month
  • Consolidating these debts into your mortgage could end up costing you more interest, due to the longer term
  • Whilst some lenders may offer to increase the value of your existing loan, you may need to refinance which could mean losing the benefits of your current deal

Whilst there’s clear benefits to this approach, you must consider all other options before you proceed. For example, you may be able to use balance transfer credit cards which offer you low rates or even 0% interest for a period of time.

Debt consolidation vs. Second charge mortgage

When you look to use a mortgage to consolidate debt, you generally have two options:

  • Remortgaging with your existing lender (or new lender, if better terms are available)
  • Apply for an additional second charge mortgage

This latter option means you’ll have two mortgage payments to make each month. It might be financially advantageous to use a second charge mortgage if the deal you have on your current property is on more favourable terms than the deals that are currently available.

Taking the second charge allows you to consolidate your debts into a single payment whilst retaining the existing deal on your current mortgage.

Debt consolidation vs. Equity release

Equity release loans are generally used for homeowners aged 55 or above who want to release capital tied up in their property to give them additional monthly income, a lump sum or a combination of both. This money could be used to finance day-to-day living expenses or to pay off existing debt.

Although it may sound like a great way of releasing the value from your property, be sure to take financial advice before proceeding, so you understand the long term impact of this type of borrowing.

With equity release both capital and interest accrued is only paid off once the property is sold after you have either died or moved into long-term care.

Get matched with a debt consolidation mortgage expert

There are a few different ways to consolidate all of your existing debts. Getting the right advice for your circumstances is vital, so talk to an expert in this area who can provide all the information and options to help you make the right choice.

Our large network of helpful, qualified brokers has all the knowledge and experience you need to make your debt consolidation remortgage application a success. Call 0808 189 2301 today or get in touch to get your personal finances back on track.

FAQs

Can I remortgage a buy-to-let property for debt consolidation?

Yes, there are lenders who will offer a debt consolidation remortgage on a buy-to-let property and you can find deals that provide up to 80% LTV.

How long does it take to remortgage?

It can take anywhere from 2 weeks to 6 months for the application to be processed depending on the lender and the complexity of your situation.

Ask A Quick Question

We can help! We know everyone's circumstances are different, that's why we work with mortgage brokers who are experts in Remortgages Ask us a question and we'll get the best expert to help.

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Pete Mugleston

Pete Mugleston

Mortgage Expert

About the author

Pete, an expert in all things mortgages, cut his teeth right in the middle of the credit crunch. With plenty of people needing help and few mortgage providers lending, Pete found great success in going the extra mile to find mortgages for people whom many others considered lost causes. The experience he gained, coupled with his love of helping people reach their goals, led him to establish Online Mortgage Advisor, with one clear vision – to help as many customers as possible get the right advice, regardless of need or background.

Pete’s presence in the industry as the ‘go-to’ for specialist finance continues to grow, and he is regularly cited in and writes for both local and national press, as well as trade publications, with a regular column in Mortgage Introducer and being the exclusive mortgage expert for LOVEMoney. Pete also writes for OMA of course!

FCA Disclaimer

*Based on our research, the content contained in this article is accurate as of the most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The information on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms that are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs.

Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.

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