Remortgage to pay off credit card debt, lending criteria and why lenders may decline your application, even if it looks straightforward.
This article assumes that you have already researched alternative options such as transferring your debts to a lower interest credit card or personal loan and you have come to the conclusion that you would prefer a Remortgage to pay off credit card debt.
Before considering consolidating personal finance against the security of your property it is vital that you speak to a mortgage professional, like Niche Advice, as they will offer advice on whether this course of action is the most appropriate for you, explain the risks, and confirm whether this will save money or ultimately cost more in the long run.
Lending criteria for remortgaging to pay off credit card debt
As a rule of thumb lenders prefer to see a minimum of 20% equity left in the property after the consolidation has taken place. To explain the point more fully if you have a property worth £100,000 with a current mortgage of £50,000, in theory you could roll-in £30,000 worth of credit cards. This would take the new mortgage up to £80,000 (80%) so effectively 20% equity is left.
You will notice the caveat ‘in theory’ because Mortgage Lenders often have multiple layers of rules that overlap or supersede each other. How so? Well it could be they allow up to 80% of the property value OR £25,000 (whichever is the lower) to consolidate credit cards.
Further rules might include the proportion of current personal debt in relation to earnings. For instance if your credit card balance is £20,000 and you earn £25,000 a year then this may be considered to be at a dangerous level, and if rolled into the mortgage, the Mortgage Lender might be worried that you might delve again the credit facilities to the detriment of their mortgage. This, often unwritten rule, is becoming much more prevalent and I personally have had recent bad experiences with Mortgage Lenders such as Barclays and Coventry Building Society who have applied this policy.
The name of the card provider might also cause the Mortgage Lender to turn their noses up or trawl over your application more thoroughly. For example, Vanquis (rightly or wrongly) is a credit card provider that is associated with customers with a history of credit issues.
As with all finance affordability is key. Mortgage Lenders will normally seek a greater degree of documentation than if you applied for a credit card or personal loan. Importantly, if you are consolidating card cards into the remortgage some Lenders will apply rules based on a zero credit card balance whereas other Lenders, such as Santander, will factor in the current balance (even though it is to be repaid) when determining whether to lend.
Furthermore, the Lenders will reference credit agencies for current credit card balances, and this can cause issues. How so? Well some Lenders take an instance IT feed whereas others only do so at certain intervals. The worse one I have experienced takes 60 day feeds which would mean even if you cleared down the balance today you may have to wait up to two months before applying for a mortgage with them if the balance is make or break on affordability.
Is it beneficial to remortgage to repay credit cards?
As well of the pitfalls we should not lose sight of the potential monthly cash-flow advantages. Outside of rate promotions it is not uncommon for credit card companies to charge 14% whereas mortgage providers’ variable rate is typically 4%. That’s right three and half times lower which could help ends meet on a monthly basis. Mortgages are normally taken over a longer period though so could end costing more overall.
What’s the maximum loan to value on debt consolidation remortgage?
90% loan to value.
Are the mortgage interest rates higher for debt consolidation?
Not necessarily. Hit this link to see our Best Buy debt consolidation products.
Can I consolidate credit cards on to my buy to let mortgage?
Yes, absolutely but the current mortgage and the consolidation of the credit cards cannot exceed 85% of the property value.
What if you have had credit problems in the past?
You are not alone as credit issues such as missed payments and defaults are commonplace in the modern world. That said, the art is selecting the right Mortgage Lender in this instance, and that’s where the mortgage professional excels. We can provide this service, and unlike others we do not charge until the mortgage has been fully agreed and the funds are released, however it’s vital we understand what these problems are and when these problems occurred. The best place to start is by making an enquiry so we can understand the specifics.
If you want to Remortgage to pay off credit card debt, please call us on T: 020 7993 2044 or alternatively complete the enquiry form on this page.
Author: Payam Azadi
Payam Azadi is a partner at Niche Advice who are whole of the market Independent Mortgage Brokers. His role is very much focused on Property financing both on residential and commercial lines. To get in contact with him please click here.
