Debt Consolidation Mortgage Providers – Complete Review

If you’re having trouble with managing multiple debts, a debt consolidation mortgage might be the right choice for you. Our article will help you learn more about this financial tool. Each month, over 170,000 people visit our website to get advice on debt solutions. Here’s what we’ll teach you:

• What debt consolidation is and how it works.
• The real cost of a bad debt consolidation loan.
• How to increase your mortgage to consolidate debt.
• The pros and cons of remortgaging for debt consolidation.
• Where to find the best mortgage lenders for debt consolidation.

We understand the worry that comes with unpaid debts, but remember, you’re not alone. Many people face the same situation, and we’re here to help and guide you through the process of debt consolidation.

Let’s dive in.

What is a debt consolidation mortgage?

A debt consolidation mortgage, also known as a debt consolidation remortgage for non-first-time buyers, is a new mortgage that allows you to release equity in your home.

In other words, it is an amount of money you have already paid off your home within your existing mortgage. 

You can then access this money to pay off debts. In simple terms, you access the money you already paid back but extend your mortgage. Most lenders will allow you access up to 90% of the current value of your property. 

Debt consolidation remortgages are also a type of secured loan because the loan is secured against your home.

You should only choose a debt consolidation remortgage from a lender that is authorised and regulated by the Financial Conduct Authority (FCA). 

Remortgaging Vs second charge loans

Some people decide to consolidate with a new mortgage, whereas others prefer to use a second charge loan. Both options will be subject to your current credit score. 

Remortgaging is when you switch from your current mortgage to a new one, meaning there is still just one secured loan on the property.

Second charge loans are different. They are a separate loan on the equity in the property only. 

For example, if you’ve already paid off £50,000 on your home, you may be able to get a second charge loan up to this amount of the equity only.

Second charge loans are sometimes called homeowner loans, and they are also a type of secured loan against your home. 

You don’t need to get the second charge loan from the lender supplying your mortgage. Because you have technically paid this much of your home off, you can “sell” it to anyone else.

Yet, many people prefer to get these secured homeowner loans from the same provider to avoid any complications. 

Again, if you don’t keep up repayments on your mortgage or your secured loan, your home may be foreclosed. 

Can I use a debt consolidation remortgage with an existing second charge loan?

You can still remortgage with a second charge loan already taken out.

But when you are remortgaging for the purpose of consolidating debts, it may become a little more tricky with fewer options. It will depend on how much equity you currently have in your property.

Can I increase my mortgage to consolidate debt?

You can consolidate your debts through your mortgage. Remortgaging for debt consolidation is when you release equity from your home and use the lump sum to pay off debts.

You should think carefully before securing a debt consolidation remortgage and (always) seek mortgage advice first. 

You might be able to get a better new mortgage deal than you’re currently paying, allowing you to save money on debt repayments. 

However, as you have moved the money owed into your mortgage – essentially securing debts against your home – you will need to keep up repayments on your mortgage. Otherwise, your home may be foreclosed.

The amount you pay back is likely to be more and/or the loan term may last longer. 

You can think of remortgaging to consolidate debts as selling your home brick by brick to pay off other debts with the option of buying each brick back through your updated mortgage borrowing more than you were before. 

Is it smart to roll debt into a mortgage?

Securing other debts against your home can be a smart move, especially if:

• You can now access a better mortgage deal
• A lower interest rate compared to what you’re currently paying across your other debts

But it comes with risks you might not be willing to take. If so, you may want to consider an unsecured personal loan instead.

Calculating if it’s worth it is not easy because you need to factor in multiple sources of credit, proportional amounts and interest rates. Not to forget any fees and charges.

Getting debt and mortgage advice is always essential beforehand. Besides, there may be a more appropriate method of dealing with your debts as a homeowner. 

Always weigh the pros and cons of remortgaging for debt consolidation before signing up.

Benefits of remortgaging for debt consolidation

1. It is easier to manage your finances with just one monthly repayment instead of juggling multiple obligations
2. Potential to access a better mortgage and make repayments cheaper
3. You can usually stick with your current mortgage provider or remortgage with other lenders
4. There are plenty of debt consolidation mortgage lenders on the market to choose from

Disadvantages of a debt consolidation remortgage

1. You may have to pay back for a longer period
2. You may have to pay additional fees to exit your current mortgage, including early repayment charges and fees for mortgage advice (still recommended!). If these fees are so big that they make this consolidation method not worthwhile, you may want to consider other strategies, such as credit card shuffle or unsecured loans. 
3. Further debt secured against your property increases borrowing risk 
4. You could be rejected due to bad credit

There are mortgage advisors who specialise in debt consolidation remortgage options.

How much interest do you pay on a debt consolidation mortgage?

Every bank, building society or online lender will advertise rates that are rarely the same.

The interest rates you can access will be determined by a myriad of personal factors, including but not limited to:

1. Your income
2. Your credit score
3. How much equity you’re releasing
4. Existing debts

Can you consolidate debt into a first-time mortgage?

It is not impossible to consolidate existing debts when you buy your first home with your first mortgage.

The lender will need to consider your loan-to-value (LTV) ratio to determine if this is possible. 

A loan-to-value ratio is the amount you need to borrow against the value of the property. Most lenders lend to people with a loan-to-value ratio of 85% or less, meaning you must have a deposit of 15% or more. 

Alternatively, you could use some of your deposit to pay off existing debts and get a bigger mortgage that way.

Paying off debts beforehand could improve your credit rating and help you get a mortgage in the first place. Each situation is different, and you’ll require professional mortgage advice.

How long does it take to remortgage?

On average, it takes around two months to complete a remortgage and access any equity.

This means you’ll have to keep up with each monthly payment on existing debts until the equity is released and you can officially consolidate.

It may take longer if there are delays or complications with your remortgaging process.

If your debt situation worsens during the process, you may not have borrowed enough in your new mortgage to consolidate, causing significant issues. 

Could I pay off my new mortgage early?

You might want to consolidate today but have plans to save well and still pay off your home earlier than planned.

As long as you take a remortgage product that allows early repayment, then this will be possible, regardless of how many times you remortgaged and for what purpose. 

You will need to consider if there will be any charges associated with clearing your mortgage debt early. 

Debt consolidations loans for all purposes

• Stuck paying high interest on credit card debts & loans?
• Looking for a better interest rate?
• Stuck with the confusion of multiple repayment plans?

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When would a mortgage lender repossess my home?

The Mortgage Conduct of Business (MCOB) rules tell lenders how they must react if one of their customers fails to make full repayments.

Before taking a customer to court to try and repossess the property, they must exhaust all other available options. 

The options they must consider, as stated by Shelter, include: 

• Changing your mortgage type to a more suitable product
• Extending your mortgage by lowering repayments
• Adding any missed payment to the mortgage debt (usually if you’ve started paying in full again)

The key takeaway is that one or two missed repayments will not mean your property will be repossessed. It’s better for all parties to come up with a reasonable solution. 

If you’ve decided you cannot afford the property anymore and are trying to sell it with it already listed on the housing market for sale, then the lender cannot take you to court. 

Types of remortgage deals

When you remortgage, you will have access to the different types of mortgages at any other time. You might look for:

1. Fixed-rate mortgages – the interest rate is fixed for a short period, usually up to five years, and then you pay a variable rate.
2. Tracker mortgages – the rate of interest moves in line with the Bank of England’s base rate.
3. Offset mortgages – a subcategory of the above options where your savings with the same lender are counted as an overpayment, which can help save you money. 

Where can I find debt consolidation mortgages?

Mortgages of this kind are available through a bank, building society or online mortgage lenders.

Comparing them can be a lot of work, but there are websites to help you compare the essential details. Or you can outsource to a mortgage advisory. 

Use a whole-of-the-market advisor to avoid missing out on a better remortgaging deal. Some advisors work with select lenders only, meaning you are not being considered for a mortgage that could be better for you. 

Debt consolidation mortgage providers

Below, you can find debt consolidation mortgage providers in the UK.

These are lenders who might offer you mortgages to consolidate your debts. There are other remortgage providers and brokers to consider before making a decision.

• Virgin Money
• HSBC
• Santander
• Lloyds
• Barclays
• Halifax 
• Metrobank
• TSB
• Post Office
• Co-Operative
• Royal Bank of Scotland
• First Direct
• Coventry Building Society
• Atom Bank
• Kensington
• Principality

With so many choices, it can be confusing to know where to look first. That’s why mortgage advice services can be extra beneficial. 

Considering an unsecured loan instead?

If the risk of securing debt against your home makes you feel anxious, you could always consider consolidating your debts with an unsecured debt consolidation loan instead.

These loans work for lots of people each year. You should seek debt advice from a UK debt charity if you’re considering this alternative. 

You can get free advice from:

• Citizens Advice
• National Debtline
• StepChange
• MoneyHelper