We've rebranded! Formerly known as Green Mortgages
We've rebranded! Formerly known as Green Mortgages
Debt has a habit of creeping up on homeowners. A credit card here, a car finance agreement there, maybe a loan taken out a few years ago that’s still running in the background. On their own they all feel manageable. Added together, the monthly outgoings can start to look like a lot.
If that sounds familiar, you’ve probably already wondered whether rolling it all into your mortgage would help. And the question we get asked more than any other is where the ceiling is. How much is too much to put onto a debt consolidation mortgage?
In this helpful guide, our experts will explain what actually sets the limit, how lenders work it out and what your options are if the amount you have in mind turns out to be more than they’ll allow.
There’s no fixed limit on how much debt you can consolidate into a mortgage. What sets the ceiling is your loan-to-value once the debts have been added, whether you can afford the new payment and the individual lender’s own cap. Most lenders will consider debt consolidation up to 80% loan-to-value, with a select handful going to 85% and 90%.
That’s the short version. In practice it depends far more on your equity than on the size of the balance. We’ve seen homeowners consolidate £40,000 without much difficulty at all. We’ve also seen cases where £10,000 was a stretch. Same debt, very different position.
It’s also worth knowing that lender policy varies more than people expect. Some cap consolidation at a cash figure, with ceilings around £50,000 being fairly common. Others limit it to a proportion of the loan or the property value, and a handful apply no specific cap at all as long as the loan-to-value works. It’s the main reason two lenders can look at the same case and give you completely different answers.
Loan-to-value compares what you owe against what your property is worth. Simple enough. The bit that catches people out is that lenders look at the figure after your debts have been added, not the one you’re on now.
Say your home is worth £250,000 and you owe £150,000. That’s 60% loan-to-value, with £100,000 of equity behind it. Add £25,000 of credit card and loan balances and the mortgage goes to £175,000, or 70%. Comfortable, and most lenders would happily look at it.
Now change one number. Same property, same £25,000 of debt, but you owe £200,000 instead. You’re at 80% before you even start, and 90% afterwards. At that level the list of lenders willing to consider debt consolidation gets very short, and the rates you’re offered get noticeably worse.
As a rough guide:
Keep in mind that every pound you add reduces your equity. That matters later as much as now, because a higher loan-to-value can push you into a more expensive rate band at your next remortgage and leaves you less room if you ever need to borrow again.
Getting past the loan-to-value test is only half of it. Your lender still has to be happy that you can afford the new payment alongside everything else going out each month.
Your debt-to-income ratio does a lot of the talking here. It’s the proportion of your gross monthly income already going towards repaying debt. Below 36% is generally treated as healthy, with no more than 28% of that going on housing costs. Once you’re past 43%, many lenders will start treating the application as higher risk.
The good news is that consolidation often improves this figure, which is much of the point of doing it. Swap £800 a month of card and loan payments for £250 on the mortgage and the ratio moves a long way. Lenders assess the position after consolidation, so that improvement works in your favour.
Two other things come up regularly.
The first is your credit history. Lenders want to see how you’ve handled borrowing over recent months, so missed payments, rising balances and heavy use of your available credit will all get noticed. A healthy credit profile widens your choice of lender. Having had some difficulty in the past doesn’t rule you out, though it may mean looking at specialist lenders rather than the high street.
The second is how the debt built up in the first place. Balances that grew slowly across five years read very differently to balances that appeared in the last six months. And if you’ve consolidated before and the unsecured debt has crept back since, expect underwriters to go through the application far more carefully.
Before you get too far into this, it’s worth seeing what the figures actually look like. Use our debt consolidation calculator to see how your monthly outgoings could change, so you can compare what you’re paying now against a potential new payment. Having a rough number in front of you makes the conversation with an advisor far more useful.
There are also situations where the numbers technically work and it’s still not the best idea to consolidate your debt into your mortgage.
Being told no by one lender isn’t the end of it. There are usually a few routes still open to you.
Consolidating part of the debt rather than all of it keeps you inside a workable loan-to-value band while still cutting your monthly outgoings. Clearing the two most expensive balances often gets you most of the benefit anyway.
A further advance is worth asking about too. This is where you borrow more from your existing lender on top of your current mortgage, leaving the deal you’re already on untouched. It can be the better option if your existing rate beats anything available now, or if switching would trigger an early repayment charge.
A second charge mortgage is separate borrowing secured against the same property, behind your main mortgage. Rates are higher than a standard remortgage, but your existing deal stays in place and some lenders take a more flexible view of consolidation. Please note we can only offer a discussion around a secured loan on a referral basis with our secured loan partners.
And then there’s simply waiting. A rising property value or six months of overpayments will both bring your loan-to-value down, and the answer can change on exactly the same set of debts.
In practice, the amount you can consolidate is whatever keeps you inside your lender’s loan-to-value cap and passes their affordability checks. If you’ve built up decent equity and your income is steady, that can run into tens of thousands. If you’re already borrowing close to what your property is worth, it may be very little.
Because criteria differ so much from one lender to the next, it’s worth having someone check the whole market before you assume the answer is no. At Proper Advice we work with over 90 high street and specialist lenders, and we’ll give you a straight answer on what’s realistic.
Fill out our contact form, give us a call on 01244 955 399 or email us at info@properadvice.co.uk.
Most lenders will consider debt consolidation up to 80% loan-to-value. Between 80% and 90% fewer lenders will accept it and rates are higher. Above 90% it’s rarely available. The figure that counts is your loan-to-value after the debts have been added to the mortgage.
Yes, if you’ve got the equity and the affordability to support it. Some lenders apply a maximum consolidation amount around this figure, so £50,000 can be the point where your choice of lender starts to narrow. Whether it’s possible depends on your resulting loan-to-value rather than the sum itself.
There’s no rule against it, but lenders look closely at repeat consolidation. Unsecured debt that has rebuilt since a previous remortgage suggests the underlying problem wasn’t resolved. Each round also reduces your equity, which leaves you less room the next time round.
Yes. Consolidation increases your mortgage balance and reduces your equity, which pushes up your loan-to-value. That can move you into a more expensive rate band at your next remortgage and limits how much additional borrowing you can take on afterwards.
Think carefully before securing other debts against your home. The overall cost of repayment of other debts might be more when added to your mortgage.
Your home may be repossessed if you do not keep up repayments on your mortgage.
You may have to pay an early repayment charge to your existing lender if you remortgage.
