Mark Tiley is marketing manager at GE Money Home Lending:
“The situation faced by the couple has become quite commonplace in recent years. As property surged ahead in prices, more people have looked towards their property and the rise in its equity as a means of helping them to refinance their debt. While this is a viable option for some, there are key issues they should be aware of when looking at the short and long-term financial options available to them.
One option would be to remortgage in order to consolidate their debt. However, this would mean spreading the repayment typically over a 25-year period, rather than the five or 10 years of a standard personal loan. The remortgage option would mean considerably lower monthly payments.
By remortgaging and paying off the existing £20,000 debt, it would be more manageable for the client to manage their finances with just one fixed monthly payment. In addition, remortgaging to consolidate this debt would still leave them with over £50,000 in equity in their property, which would safeguard against any possible fluctuations in property prices in the future.
Unfortunately, owing to the couples recent repayment difficulties, the majority of high-street lenders are unlikely to look too favourably on any remortgage application. This may necessitate Frank and Pat looking to a specialist lender.
Another option also open to the clients would be to take a second charge mortgage. This should reduce the rate that they are paying on their unsecured debt and give the option to repay the £20,000 over a shorter term.”
Adrian Kidd is an IFA at Mint Financial Services:
“Luckily, we are only dealing with one months arrears in last 12 and speed of completion is key here as the more arrears, the higher the rate and the harder to place the business. Consolidation is the answer to more manageable monthly payments and a number of lenders would be happy with this case. It is just on the line of a full status case and we can quite easily get a rate under 6 per cent with the one month arrears (SPML minor adverse 5.74 per cent fixed for two years fits the initial criteria). Also the LTV helps to get a good rate. It’s a precarious position they find themselves in but I would make sure the mortgage payment is the priority over the unsecured payments in the next two months. Obviously pay both, but mortgage must be paid first. Also, speak to the lender as you may be able to convert to interest only for a few months if on a repayment. Explain your situation to all your liability companies as they are there to try and help and understand your situations and offer you help.
Frank and Pat must also be made aware that adding these unsecured debts onto a mortgage will make them worse off as these will be paid over a much longer term. I would also offer them coaching sessions on general household budgeting and give them budget planners and go through last six months bank statements with a fine tooth comb, and try to understand why and how they’ve borrowed to this excess as they are very over-stretched. I would also want to make sure they understand the commitment they are undertaking and help them to try not to make same mistakes again, as they are lucky the house equity is there to bail them out (for now).”
Ian Batterbee is managing director of Clancy LeSurf:
“There are plenty of companies willing to accept people with arrears. It’s easy to simply sort the ‘problem’ and walk away – but I think that as an industry we have an obligation to do more than ‘scratch the surface.’ I would review their income, and outgoings, and ensure any unnecessary costs were eliminated.
It is important that the client understands how they got into this position in the first place, and how to ensure they don’t repeat the behaviour, else they will find themselves back to square one in a matter of months.
So far as the outstanding debts are concerned, it appears that the clients are paying a higher APR than they would be able to obtain on a secured mortgage. From an immediate cost reduction point of view, it seems prudent to consolidate.
If they really do have cash flow problems, the possibility of moving part, or all their mortgage onto interest only would be considered. That said, the client has to understand that this will leave them with a higher mortgage, and potentially no vehicle to repay the debt. They would have to think hard as to whether things really are going to improve in the medium to long-term.
GMAC-RFC will accept people with outstanding arrears. It has a product that would suit with a fixed rate of 4.99 per cent for two years, and no early redemption penalties outside this period. It also has a fee of £595 payable at outset.”
