Due to rate increases last year, combined with a Christmas over-spend, Steve has found himself with an additional £30,000 worth of credit card debt and a default registered in April 2007.
He earns £20,000 per annum, with annual bonuses of £6,000. He wants to release equity to consolidate his debts. What are his options?
Neil Hoare is associate director of proposition development at Pink
It’s unfortunate that Steve didn’t take advantage of another fixed rate deal in March last year, before the crisis hit the industry.
Opting for the Base Rate tracker, thinking that this would be a cheaper option, may not have been wise given there were three rate rises in 2007.
What he has to decide now is how to manage his fluctuating mortgage payments, with the added burden of debt.
Releasing equity to consolidate debt has an element of repossession attached to it. The debt will also run for the rest of the mortgage term, costing him more money in the future.
Steve still has a relatively good payment record and, dependent on the amount of the default, he may be considered for a prime product provided by either Abbey or Cheltenham & Gloucester.
Alternatively, Future has a prime range and First National has an Ultralight range that could be suitable.
Steve should also consider contacting a counselling service that will give him advice on how to approach his creditors and help him plan a realistic budget.
Danny Lovey is proprietor of The Mortgage Practitioner
Having got into this situation and assuming Steve has spoken with his current lender and they will not offer him a better deal on his outstanding mortgage, then remortgaging and consolidating his outstanding debts seems to be his best option
As this is now going to be 88 per cent loan-to-value, he will certainly get a ‘health and wealth warning’ from me about doing this and the ramifications.
A near-prime type product with defaults ignored seems to be the best option. Amber Homeloans offers a two-year discount mortgage deal until May 2010, with a current pay rate of 6.49 per cent and a £999 arrangement fee, and also a 6.79 per cent fixed rate with the same arrangement fee.
Alternatively, Future Mortgages‘ fixed rate deals of 6.70 per cent for three years or 6.90 per cent for two years with a £995 arrangement fee and free legals on a remortgage could be considered as viable options for the client.
Tony Cardiff is sales director at Alexander Hall
Replacing short-term unsecured debt with long-term debt secured against his main residence should not be Steve’s first choice.
However, if he has exhausted all other debt management avenues, there are remortgage options which could be available to him.
What he needs does not fit any of the high street lenders’ criteria. First National will lend up to 90 per cent of value where capital raising is involved and provided the debt is paid off on completion, this case should fit the lender’s mortgage affordability calculator.
If Steve has problems budgeting, I would recommend a fixed rate mortgage arrangement.
The best option would appear to be a two-year fixed rate at 8.54 per cent. There is a slightly lower three-year rate, but I would hope that if Steve can keep his credit record clean he could switch to a lower high-street rate at the end of two years and reduce his payments at that point.
