Common mistakes made when Remortgage to pay a Tax Bill
If you are reading this article, you may have already fallen into the trap of thinking Remortgage to pay a Tax Bill is straight-forward, well it isn’t, and the wrong positioning and lender selection can lead to rejection and harm to your credit rating. If the tax bill also has a deadline to be repaid, it could have wide-reaching consequences.
This article touches on the common mistakes made when looking to remortgage to repay a tax bill, and it is prudent to use a professional Mortgage Broker, such as Niche Advice, for this particular type of borrowing.
- Thinking you can attempt this on your own.
It is highly likely that the Mortgage Lenders that you are familiar with will not lend to repay a tax bill. In fact, the vast majority of Mortgage Lenders that will consider this type of lending are specialist lenders that will only accept mortgages through Mortgage Brokers and a few small regional building societies.
- Not choosing the right property
If you own more than one property it is normally prudent to choose the one you do not live in for added security. If it is a buy-to-let then the Lender Choice is probably going to be wider.
- Leaving it too late
Remortgages typically take 4 to 6 weeks to arrange. However, as the reason for remortgage is the repayment of a tax bill it is likely to be closer to the 6 week mark as the Mortgage Lenders involved will be reliant on manual rather than automated assessment.
If there is an urgency, such as court proceedings, other finance vehicles such a bridging which can be quicker. Discuss this with your Mortgage Adviser. - Thinking the Mortgage Lender’s policy will be the same regardless of the tax type
You might think ‘great’ I’ve found a Mortgage Lender that lends on tax remortgages – the devil however is in the detail. For example, some Lenders prefer taxes such as “Corporation tax” as they see this as “business purposes” and others won’t go near it for the very same reason.
- Size of bill
When to comes to remortgaging a tax bill the size of the debt does matter. The Mortgage Lender might conclude that you have been irresponsible to let the debt accumulate to that level or even have monetary maximum in their lending policy for debt consolidation say £30,000 or £50,000.
- The more recent the tax issue the better for Mortgage Lenders. Tax debts relating to two or more tax years ago drastically reduces choice.
The more recent the tax issue the better for Mortgage Lenders. Tax debts relating to two or more tax years ago drastically reduces choice.
- Re-offending
Mortgage Lenders are likely to probe it whether this tax bill is a “one-off” or whether you have remortgage before for this reason. Some Mortgage Lenders will consider your case if there is a track record of debt consolidation.
- Insufficient equity in your home
The sweet spot is at least 25% equity remaining after the remortgage. For example, existing mortgage £50,000 borrowing £25,000 to pay your income tax. The property would need to be worth £100,000 i.e. 75% loan-to-value remortgage. There are Mortgage Lenders that will consider a lower equity percentage but it becomes more of a challenge on choice and acceptance.
- Not having an acceptable rationale for why the tax bill arose
The Mortgage Lenders prefer you to point to a circumstance / life event / unforeseen expense for why the tax bill was unpaid. Simple to say bad planning is unlikely to wash. Other outside issues such as bad advice/mistake from your Accountant can be more palatable.
- Just wanting funds to pay part of your tax liability
The Mortgage Lenders will not want to be part to your jostle with HMRC. They will expect at the point of Completion of the remortgage 100% of the tax bill debt will be repaid.
If you’re looking to remortgage to pay a tax bill, please do get in touch as you will need some specific advice about lending criteria. It’s important that we fully understand the reasons why you have been left with a tax liability as different lenders have specific rules around debt consolidation and tax bills. Debt consolidation remortgages. are seen as a higher-risk area, and it’s vital you discuss and consider the benefits and downsides when looking at these types of products.
Think carefully before securing other debts against your home. Some Buy to let and commercial mortgages are not regulated by the Financial Conduct Authority. You are consolidating your existing financial commitments, you should therefore be aware that whilst this may mean you will make short term savings, over the long term, you may end up paying more. This is because you may be extending the period of the loan. You are also transferring previously unsecured debts to a mortgage which is secured on your home. The reason you want to consolidate your existing debts is to reduce your monthly outgoings.
