Debt consolidation mortgages - 3 questions to ask
19/05/2008
Today, anyone looking into debt consolidation mortgages is facing a market that’s grown a lot tougher over the last eight months or so. With credit harder to find and more expensive – and the future of the housing market looking uncertain – they’ll need to ask themselves three questions:
- Will anyone give me a debt consolidation mortgage?
- Would that debt consolidation mortgage be affordable?
- Is there enough equity in my house to make it worthwhile?
Will anyone give me a debt consolidation mortgage?
In recent months, the number of mortgages on offer has plummeted as lenders adopt a much more cautious approach to lending money. They’re not just turning down more applications, but requiring larger deposits from the people they do lend to.
This applies to remortgages (on property the borrower already owns) as well as mortgages (for purchasing a property in the first place). With mortgages, 10% deposits are common these days, and 25% deposits aren’t uncommon. As for remortgages, most lenders are now limiting them to 80% of the property’s value – down from 125% before the credit crunch.
Would that debt consolidation mortgage be affordable?
Many people have criticised lenders for not passing on recent cuts in the Bank of England’s base rate to their customers. At the end of April, over a third of British lenders did reduce the rates on their SVR (Standard Variable Rate) mortgages – but even so, the limited availability of credit is keeping interest rates higher than we’re used to.
Is there enough equity in my house to make it worthwhile?
If you want to consolidate your debts through a remortgage, you’ll probably need a bigger deposit than for a first-time buyer mortgage – it could be 40% of the mortgage deal, so you may be counting on the equity in your home.
When house prices were rising rapidly, this wasn’t such an issue: homeowners knew they’d have more equity to draw on if they just waited a while, so many of them saw debt consolidation mortgages as an ‘easy’ solution to debt. Now that the housing boom seems to be over, it’s a different picture:
Region |
Change 1998 Q1 – 2008 Q1 (%) |
Annual Change (%) |
Quarterly Change (%) |
| East Anglia | 196 |
3.4 |
1.4 |
| East Midlands | 183 |
2.9 |
2.2 |
| Greater London | 191 |
2 |
1.6 |
| North | 193 |
3.1 |
1.2 |
| North West | 176 |
1.3 |
-0.5 |
| Northern Ireland | 271 |
3.5 |
-1.5 |
| Scotland | 146 |
5.3 |
0.2 |
| South East | 169 |
3.3 |
0 |
| South West | 184 |
-3.3 |
-2.6 |
| Wales | 188 |
-5.3 |
-4.7 |
| West Midlands | 150 |
-3.7 |
-5 |
| Yorkshire & the Humber | 179 |
0.1 |
-0.5 |
| All UK | 176 |
1.1 |
-1 |
This might give you some indication of price trends in your area – and perhaps how much equity you could have to draw on if you’re planning to remortgage to consolidate your debts. The key factors are:
- how long you’ve had your property, and
- whether you’ve already secured a loan / taken out a debt consolidation mortgage against it.
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