Remortgaging to Consolidate Debt

Consolidating your debts into your mortgage is often possible, but it requires careful consideration and the approval of your lender. This involves remortgaging or borrowing additional funds against your home to pay off existing debts, effectively consolidating them into a single monthly mortgage payment.

Who can remortgage to consolidate debt?

Homeowners with sufficient equity and who meet the lender’s criteria may consolidate debts into their mortgage through a debt consolidation remortgage. This works similarly to a regular remortgage, but with additional borrowing secured against your property to clear your debts.

Debts that can be secured against your home include:

• Loans
• Credit Card Debt
• Hire Purchase Agreements
• Student Loans
• Store Cards
• Overdraft

Most mortgage lenders apply stricter LTV caps for borrowers consolidating debt, reducing the amount you can borrow relative to your property's value. These limits are designed to minimise the lender’s risk.

Lending criteria and LTV requirements

When consolidating debt through a remortgage, lenders typically impose stricter criteria to manage risk. Most lenders cap LTV at 60%–85%, meaning you’ll need at least 15%–40% equity in your home.

• Time in the Property: Most lenders require you to have owned your home for at least six months before applying for a debt consolidation remortgage.
• Type of Debt: Most debts, including loans, credit cards, and overdrafts, can be consolidated. Some lenders may exclude certain debts, such as gambling-related debts.
• Mortgage Type: Interest-Only Mortgages: Some lenders won’t approve debt consolidation if part of your mortgage is interest-only. Shared Ownership Properties: Debt consolidation remortgages may not be permitted for homes purchased through schemes like Shared Ownership.
• Borrower’s Age: Borrowers aged 75 to 85 during the mortgage term may face additional restrictions or require a specialist lender.
• Credit History: Bad credit, such as missed payments or defaults, can complicate the process, but specialist lenders may still consider your application.
• Property Type: Non-standard properties, such as those with unique construction or features, often require specialist lenders for debt consolidation remortgages.

While many mortgage providers adhere to strict criteria for debt consolidation remortgages, specialist lenders often offer greater flexibility to accommodate borrowers with unique circumstances.

How to get a debt consolidation remortgage

Steps to Start Your Debt Consolidation Remortgage Application:

Calculate Your Loan-to-Value (LTV): Combine your outstanding mortgage balance with theextra amount you need to borrow to consolidate your debts.  Take the total borrowing amount and divide it by your property’s current market value. Multiply the result by 100 to express the LTV as a percentage.

Speak to a broker: To get the best deal on your debt consolidation remortgage, it's a good idea to speak to a mortgage broker before you apply. Their knowledge, experience and lender contacts can help ensure that you find the most suitable arrangement for your needs and circumstances.

Which lenders are available?

 Here are some examples of lenders currently providing debt consolidation remortgage products, along with their specific criteria:

• Kent Reliance: Maximum LTV: Up to 95%, making it an option for those with minimal equity. Caveat: Higher rates may apply for borrowers at or near the maximum LTV.
• Bluestone: Debt Type Restrictions: Applications involving gambling debts may be declined.
• Leeds Building Society:  Offers debt consolidation remortgages. Not available for homeowners who purchased their property through Help to Buy or Shared Ownership schemes.
• Accord Mortgages: Allows consolidation of up to 10 different debts. Cap: A maximum of £50,000 in secured debt can be consolidated.
• NatWest: Only permits debt consolidation on capital repayment mortgages. Applications from interest-only mortgage holders will be declined.

Lenders that do not offer debt consolidation include Skipton Building Society and Bath Building Society.

Can you get approved with bad credit?

It’s possible to secure a debt consolidation remortgage even with bad credit, though it may be more challenging to obtain the most favourable deals. The likelihood of approval depends on several factors:

• Severity of Credit Issues
• Time Since the Credit Issue
• Mitigating Circumstances
• Equity in Your Property

Should you remortgage to consolidate debt?

To help you decide whether it is a good idea, below highlights the advantages and disadvantages of remortgaging for debt consolidation.

Advantages

• Replacing multiple debt payments with one monthly mortgage payment streamlines your budgeting and reduces the risk of missing payments
• Consolidating debts into a mortgage often reduces your monthly outgoings, as mortgage interest rates are typically lower than those for credit cards or personal loans.
• You no longer need to keep track of different payment dates, interest rates, and lenders.
• Lower monthly payments can free up cash for other expenses or savings goals.

Disadvantages

• Mortgage terms typically range from 15 to 30 years. Spreading your debts over this period means paying interest on them for much longer than with typical personal loans or credit cards.
• Even if your mortgage interest rate is lower than the rates on your debts, the extended repayment period can result in paying significantly more interest over time.
• Consolidating unsecured debts (like credit cards or personal loans) into your mortgage turns them into secured debt. This means your home is at risk of repossession if you cannot keep up with payments.

Alternatives to Remortgaging for Debt Consolidation

If remortgaging isn’t suitable or desirable, there are other options for consolidating debt against your property: 

• Further Advance:  Borrowing additional funds from your current lender without altering your existing mortgage terms.
• Secured Loans (Second Mortgage):  A second charge loan secured against your property, sitting behind your primary mortgage.

There may also be other alternatives you could consider if you cannot remortgage but need to consolidate debt.

Frequently Asked Questions