Borrowing more on mortgage

[BYTEr]

Hi all,

Just looking for any advice or any cons of borrowing more on your mortgage.

Me and my wife bought our first house October last year and a month ago we got our first annual mortgage statement through the post which also included a booklet which had information regarding borrowing extra on your mortgage which at the time I didn't take any notice.

However, I've just decided to look more into it, and on first glance it seems it can be quite good, especially compared to an ordinary loan due to our mortgage interest rate being much lower than anything I'd get through a normal loan, and because the pay back period is much longer, the monthly payments are much reduced when compared to a normal loan.

For example, we currently pay £528 a month on our mortgage, and it seems borrowing an extra £10k seems to only increase this by £35 a month.

The reason I've started to look into this, is because me and my wife have racked up multiple loans, credit cards, finance packages etc since we graduated in 2015 (wedding/honeymoon, cars, furniture etc) to which takes up a significant proportion of our monthly salaries meaning we are often down to our last few pennies a month meaning saving anything is near impossible (we only have £500 savings), which also means if we were to have any significant unusual expense, we'd need to use a credit card again, so borrowing extra could be used to pay a big chunk of this off.

Secondly, we'd also like to buy the freehold of our property after the second year which will roughly cost £4k.

Now, I haven't checked whether we'd actually be accepted to borrow more, especially since it's only been a year since we purchased, only paid of roughly £3k of the mortgage and have no idea how much our property is now worth, although new properties of the same type have been built nearby since and sold for £19k more than we purchased ours for.

Halifax state we can borrow more after 6 months up to 85% of the value of your property, including your existing mortgage and additional borrowing, which, considering we only paid a 5% deposit with a 20% HTB loan, doesn't sound like we'd be close in being able to borrow the minimum of £10k with this resulting in less than borrowing 85% of the value of the property.

Regardless of that, I'm interested to hear peoples opinion on borrowing extra on your mortgage compared to normal loans for the purpose of paying of debts.

Thanks in advance.

 

[BYTEr]

Hi all,

Thanks for the replies.

Our debts are manageable, however, it just doesn’t leave us with much for anything else, we don’t live a luxurious life either (can’t afford too), we shop at Lidl, eat out once a month and we’ve been on one holiday this year to Cornwall for 3 days which cost £100 for a static caravan.

We’ve balanced transferred as much of our credit card debts as possible (£6.5k), but still have £1.5k on an 18.9% credit card where we struggle to pay much more than the minimum at the moment.

Our main debt outgoings are from our wedding/honeymoon loan, car loans and then finance deals we took out (some are 0%) when we purchased our home, flooring, furniture etc.

Essentially, we’re in this position because we were not expecting to buy a house so soon, but my wife received a £7k payout and we thought this might be our only opportunity to buy any time soon, purchasing the house cost £12.5k, £5.5k more than the payout (£10k deposit, £2.5k solicitor and stamp duty) along with all the extras we needed which we didn’t have like a fridge, bed, wardrobes, sofas etc, also had to buy flooring and the £1.5k stamp duty was annoying considering less than a month later it was scrapped for first time buyers!

So we were very aware at the time that in the short term we’d have little left, but hopefully in the long term we’d be better off, however I wasn’t really aware of borrowing extra, so it seemed quite good that I could pay some debts, reduce our monthly outgoings for a small increase in mortgage costs and why I made this thread.

 

[BYTEr]

As ita only 1.5k "bad debt" can you not repay it ASAP?

Unfortuantely not, we roughly have about £150 left at the end of the month after all expected expenses, however, something always needs more money, be it cars, cloths/shoes, the dentist, or b/day or xmas presents etc.

Also, I think you can retroactively recover the stamp duty if the reason you didn't receive it was it being over the cap? (announced in latest budget last week )

Don't think so, the house was £200,000 and we were first time buyers, less than a month later and we wouldn't of paid anything, bit a joke really.

 

[BYTEr]

It is straying off topic, but with £150 remaining after debts and expected expenses, but then an admission that there are always unexpected expenses, I would argue that your debts are not affordable at all. You're extremely vulnerable to a financial shock, such as a prolonged loss or reduction of income. I sincerely hope that some of those outgoings insure you against those kinds of events.

We're extremely vulnerable, it only takes a couple of sick days, or needing new tyres, or a trip to the vets and we wouldnt have enough and we'd be forced to use a credit card.

We've managed for the past year, but unless our income goes up we will be in this situation for at least another 3 years.

We have done everything we can to cut expenses, like using 0% balance transfer cards, switching energy providers, getting rid of sky, using packed lunches, shopping at Lidl etc, but the fact is, we have overstretched ourselves trying to buy a house from an unexpected pay out and we're now in a situation where we just about manage but very vulnerable, hence why I was interested in borrowing more on our mortgage to pay some debts off and reduce our monthly outgoings.

Ideally I need more income, but doesn't most people.

 

[BYTEr]

Unfortunately you don't have many options now you're in this situation, so you may not have choices. If you're able to remortgage to borrow more then it'll be cheaper in the short term but a non-secured personal loan will be cheaper over the longer term. I don't think you have the luxury of looking at the longer term.

If neither of those is an option then there's already been some good advice in this thread about paying off the most expensive debts first etc. Are there any family members who may be willing to help you out?

What are your options for more income - can either or both of you look for other jobs or get second jobs?

Do NOT have a child!

Didn't think we'd have many options, even remortgaging doesn't seem an option, but worth some more research, as I've mentioned earlier in the thread, we knew we'd be in this situation buying a house when we did, hopefully in 3-4 years we will be in a better position and it would have been worthwile.

In terms of family helping, then no, my father in law is a high earner (senior HMI inspector) who has helped us out on occassions with unexpected expenses, so we'd never be on the street or anything.

In terms of children, then too late, wife is due March 2019, but being the first grandchild, our parents have pretty much offerred to buy most things like pram, car seat, cot and those things, wife is a primary school teacher and gets a good maternity package, I think we can manage, but again, will mean no savings, paying the minimum etc.

Thanks for all the advice.

 

[BYTEr]

Holy ****. You're risking turning into a case study of everything you shouldn't do! Why on earth did you do that when you knew your current financial position?

I'm really unsure how the mortgage application was allowed to go ahead with the numbers that you're quoting.

Well, if you must know, my wife was told that it would be extremely difficult, nigh on impossible to conceive naturally due to certain issues even with drugs, but you apparently have to of being trying to conceive naturally for 2 years before any other methods and apparently it can take 4 years before you get to the IVF stage. But guess what, we conceived in the first month of trying and midwives now refer to our baby as the miracle baby.

So yeah, believe me, we weren't expecting to have a baby anytime soon.

In terms of the mortgage application, we were healthy'ish financially before we bought the house, we had £4k savings (which did disappear in purchasing the house), I had a slightly better paying job and we didn't have thousands on finance for things like flooring, kitchen appliances and furniture.

 

[BYTEr]

I'm not sure on your best course of action but I'd highlight that the freehold in question could be valuable, and if you can't or won't buy it then some investment company probably will and they'll charge you thousands more to claw it back off them down the line, also leaving you with a less valuable leasehold property to sell.

For more info look into the home builder leasehold scandal of recent years to hear of some eye watering figures that people are being asked to pay for freeholds from 3rd parties.

This won't be a problem I think, it is written in our contract that it can only be our leasehold fee (£150) times 25 (=£3750) and can only increase by the RPI after 10 years even if it's sold to other companies which I doubt will happen now, of course we have to pay for the other sides legal fee's though (£350-£550), there are lots of cases of this actually happening with this housebuilder though.

I still want to buy it if possible as soon as possible when the 2 years are up.

 

[BYTEr]

Why? This is another irrational financial decision. You currently have a low known cost with limited increases that can be applied, but you want to borrow more money that you cannot afford to ‘save’ yourself £150 a year and no other benefits. Why not just wait a few years until you can afford it?

Or, if you must buy it, wait 2 years to borrow the money to do so.

Because comparing the houses built before ours at the start of the estate that are now up to 7 years old, the ones which are now freehold are on the market and have sold for a lot more than the same leasehold ones, much more than the £4k'ish it costs to obtain, it's not to save £150 a year.

The reason I want to buy it as soon as feasibly possible is because in 1-2 years, we want to have the option to sell and move, having the freehold will massively help with this as well as the value, but of course, this isn't the highest priority, but if I could borrow an extra £10k for example in a year or two then it will be something we consider.

 

[BYTEr]

Can you do anything to better your own prospects in your industry? I.e. undertake training, any promotions you can apply for where you work, even looking for a better paid job?

Unfortunately, it hasn't gone quite to plan since graduating in 2015 and I've had to move jobs a few times because it was apparent that it wasn't going to go anywhere. I'm now at a new place, which seems really good for future prospects, but I've had to take a pay cut and essentially now at the bottom of the ladder again. In 3 months I should be getting a £2k pay rise, but I think it will be a good few years working here before I'm earning decent money.

Luckily my wife has been a teacher since graduating and is now on something like £29k with a recent £200 a month pay rise, so we are now a little better off but with a baby coming.

 

[BYTEr]

Our monthly expenses are roughly as follows:

Loans: £550
Mortgage: £528
Car Loans: £280
Food: £250
Pensions: £170
Min Payment of Credit Cards: £150
Council Tax: £147
Furniture Finance: £140
Fuel: £140
Car Insurance: £86
Gas/Elec: £76
Flooring Finance: £70
Mobile Contracts: £62
Overdraft Fee's: £50
Internet: £39
Water: £35
Home Insurance: £15
TV Licence: £13

The sum of which is £2801, our joint income after tax is roughly £3226 therefore leaving us with £425. This isn't of course an exhaustive list either, we have pets to feed, then there's things like household items like cleaning products etc and this is taking into account my wife getting a £2k pay rise in September.

Insurances and gas/elec is the cheapest we could find, internet providers are limited as we have fibre to property, as much of the credit card debt is on 0% interest deals, our mobile contracts end in 6 months so we can get cheap sims then.

Before we bought our house, we didn't have any flooring or furniture finances, council tax was cheaper, we didn't have overdraft fee's, internet was cheaper, we were closer to work etc so we roughly had £800-£900 left with £4k savings back then and managed fine.

 

[BYTEr]

75% of the loans and half of the credit card debt is down to our wedding & honeymoon, which to be honest, spiralled out of control and cost double what I was expecting.

The car loans is for both our cars bought 2nd hand at 3 years old, mine, a Mitsubishi Mirage and the wifes, a Nissan Juke, together they cost £12k, and we have 2 years left of the loan. I was thinking about selling mine and getting a banger, but I think at most I'd make £2k and I need a car to get to work. Wife works 35 mins away and I work 25 mins away, no real option to get public transport.

Our overdrafts are from our uni days, I had no financial help (dad not about, mum works at Asda) other than the student loans which didn't cover everything so had no choice, it's only recently that we've started to be charged for this.

As for the pets, it's only 3 cats, all rescued which we had long before the house.

Our phones, we had always done the thing of buying the phone outright with a cheap sim, we both did this and got a Nexus 4 for £200 with a £10 SIM and had them for years but it got to the point 18 months ago that they just didn't work and so we went for contracts.

Our car insurance for £86 is the cheapest we've ever had to be honest, we both had 4 years NCB before we went to uni but then lost them all, so we've only got 2 years NCB at the moment.

 

[BYTEr]

You mentioned your Dad. Does he really know the extent of your financial situation...if not a solid heart to heart might be needed. Even to clear the most expensive unsecured debt and perhaps with an agreement of a standing order to pay him back monthly.

As for getting your misses knocked up...there's no right time to have a child and congrats.


Didn't see student loans on there? lenders will want to know about those too.​

e) but also broadband (seems quite a lot). Cut down on luxuries a little and it will go a long way.
.

I don't think we can approach her Dad for help, I'm sure he would but I really don't want to do this unless it's really dire and our house is going to get repossesed or something.

I don't pay of my student loan now it's 9% over £25k, my wife I think pays a small amount <£20.

The broadband is a bit awkward, we basically only have BT as a choice as we have fibre to property, sky, talktalk etc isn't an option and its 52MB.

 

[BYTEr]

Car loans are 5.7% I think, didn't use the dealer finance.

Couldn't do as before and buy a phone for £200, we would if we could but didn't have that as disposable at the time.

No, 1 car wouldn't work, opposite directions.

If an unexpected repair bill like a cluth went then yes, we'd have no choice but to use a credit card, I've admitted that we are extremely vulnerable to these things, hence why I was wondering about borrowing more to pay some of out debts off.

How are we going to manage on MAT leave? Good question, my wife receives basically full pay for 6 months, then 50% for 3 months.

Couldn't get broadband for £25, we are in a fibre to property area, we don't have sky, talktalk available etc.

 

[BYTEr]

Thanks all for the replies, it is appreciated.

I am very much aware that I've over extended, before we got the house, we were actually 'ok', £800-£900 a month disposable and saved £4.5k in 2 years (not massive I know). We bought our cars just months before we purchased a house as we never thought we'd be buying anytime soon (I had a Clio on it's last legs that was given to me for free and the wife had a 17 year old 145k on the clock Beetle, also on its last legs), like I said, it was only because my wife got a payout (£7k - we though it would be more like £500) that we decided to buy, knowing it would be a risk and putting ourselves in a tight situation, but hoping in the long run we might be better off. Someone mentioned the flooring cost, well the house didn't come with flooring, it's £70 because it's only on 18 months 0% finance, we got the entire house done for £1216 including underlay and fitting (£17 m2) which I thought was pretty reasonable.

We're in a very vulnerable position, however, we've been in the same situation since October 2017 and not put anything else on credit and never missed a payment, we're in no risk of not being able to pay our debts in case of a one off unexpected payment because my father in law would help, yes, it's irresponsible and we're lucky to have that but what's done is done.

I had a phone discussion with a lady from Halifax today to arrange an appointment to discuss the extra borrowing, however, I asked her to check our situation first and basically said that at present, disregarding credit history, we don't have enough equity to be allowed to borrow more so that's a non-starter.

Trying to reduce our monthly outgoings, pensions have been mentioned. I contribute 3% and my employer contributes 5%, this is roughly £40 a month and it's the minimum I can contribute for the 5% employer contribution. The rest and majority is my wife's teacher pension, she's not sure of the particulars but has sent an email to inquire, we're both happy to cancel these to try and pay the interest earning credit card off, is there any negatives of this, except the obvious, as in, if we were to rejoin the pension scheme it would be the same as before? We don't lose anything?

I've looked into another 0% balance transfer credit card, but it seems the only ones available to me are Capital One, Aqua & Marbles that are all only 6 months 0%, 3% fee, then 34.9%, I suppose this would be ok if I knew I'd pay it off within 6 months, but I can't guarantee it so think it's best to pass for now.

Thanks again.

 

[BYTEr]

Thanks again for the replies.

Regarding the overdrafts, we have £2k each from our uni days to which we've only quite recently actually started to be charged for. I've looked into switching accounts, either to get a bonus for switching or a better APR on the overdraft but it doesn't seem any bank is willing to give us a £2k overdraft upon opening. Only thing we can try and do is when we get paid, reduce the overdraft by £50 each a month which we will start doing.

In terms of getting a debt consolidation loan, it's a very attractive option as it could reduce our monthly debt payments by hundreds by increasing the term, however I do have reservations. Firstly, the best APR I've found is 10.5%, our current loans are actually not bad, for example our biggest loan is 5.2% APR and secondly it's increasing the time period before we're debt free, at present, all loans & finances will be paid off within 42 months. We've gotten by in this situation for the past 14 months and want to as much as possible not increase the time before we're debt free, however I appreciate it's probably the best option and we may end up doing something along these lines.

As for reducing our spending, I'm glad some have understood, but we practically haven't bought anything for the last year except the essentials, we hardly go out, shop at Lidl, rarely buy alcohol etc, I can't really see how we can reduce our spending, although again I appreciate every pound saved is worthwhile. The only thing I think we're going to do to reduce our spending is temporarily halt our pensions as although we will be taxed more and therefore won't see the whole savings it will be at least £100+ saved a month which we will try and put aside to try a build even a modest amount in savings in case of unexpected expenses.

The only thing left to try and do is increase the amount of money I bring in, as I've explained previously however, I've only been in my new job since July, effectively starting at the bottom again, however they do seem to pay well and in January I should be getting a £2.5k pay rise and unfortuantely there's no opportunity for overtime and, I can't see a significant gain in my salary past January except through promotion and who knows if or when that will happen, it is the first company I've been at since Uni however that seems genuinely interested in staff development. Although my wife is against it, I am going to see if I can get another part time job on a Sunday, my previous recruitment agency were pretty good, they may have something I can do on Sundays.

 

[BYTEr]

Are you absolutely certain re your wife's maternity payment? I only ask because my good lady told me she had 6 months full paid and it was total balls. Luckily I asked to read the paperwork a few months before maternity started and we were able to save some extra.

Yes, it's in her contract/staff handbook and is 12 weeks at 100% pay, 12 weeks at 90% pay, 12 weeks at 50% (and I think SMP) and then if she chooses another 12 weeks at 0% (maybe SMP though?).

The only thing that did concern me was there was a paragraph about if she doesn't return she has to pay some of it back, but she wants to go back anyway.