Copy article

Brokers - what's happening with client debts and consolidation?

Journalist: John Fitzsimons, Freelance

ended 19. September 2023

Morning brokers

Data out this week from Citizens Advice shows that households across the UK have taken on more debt, with increasing numbers having issues keeping on top of it (https://www.mortgagesolutions.co.uk/news/2023/09/15/uk-households-plunge-22bn-in-debt-but-picture-is-only-set-to-get-worse/)

We'd love to get an idea of what the situation is with your clients:

  • Have you seen a growth in clients looking to consolidate existing debts using their property?
  • What levels of debt are they looking to consolidate? And what are the options like for them at the moment?
  • Are the more sub-prime/adverse lenders getting more of a look in as a result of the general economic situation?
  • Has the advice process for these clients changed at all given cost of living pressures?

Any and all thoughts on this one are very welcome!

11 responses from the Newspage community

Copy all

Star Quote
Copy

Steven Morris
Advising Director at Advantage Financial Solutions
Debt consolidation has spiked in three ways: the number of people considering it, the sheer amount requested and the debt-to income ratio. We have seen some people looking to consolidate more than their annual income with balances as high as £100k. Spikes in interest rates and living costs have caused some clients with previously unworrying debt levels to rely on further debt to financially survive. In some instances, these customers are now staring down the barrel of missing mortgage payments unless drastic action is taken. What concerns me most is the mortgage market's attitude to this in some areas. Some networks forbid debt consolidation in lots of scenarios, on the basis that they don't want to expose themselves to being sued for misadvice. For a significant minority of mortgage holders, consolidating debt may be the only way to keep making payments. Let's be frank: debt consolidation causing more interest being paid over the term pales in comparison to being repossessed.
Star Quote
Copy

Laura Bairstow
Founder at The Mortgage Masters
I have seen a noticeable increase in clients asking to release equity in their homes to consolidate debt. Many are struggling to save due to increased living costs so have found themselves taking out loans and credit cards to pay for emergencies such as car or boiler breakdowns. Due to rate increases, when it comes to remortgaging, clients are then having to consolidate debts and/or increase the loan term to reduce their monthly outgoings for affordability purposes.
Copy

Editor
Ranald Mitchell
Director at bad credit mortgage specialists Charwin Mortgages
There has been an increase in enquiries with elements of debt consolidation. People are looking for ways to control monthly expenditure and with many of them carrying unsecured debts, repaying these can sometimes become an attractive option. There are cases where mortgage affordability fails with unconsolidated debts remaining, leaving customers with a choice on how to proceed, and others are actively looking to restructure debts to reduce monthly outgoings. Enquiries vary enormously, from small amounts of credit to some with £10,000s of debt. The cost of living is a driver behind some of this, however poor money judgement can also be responsible. A client recently took out over £80,000 in credit cards for home improvements, mostly at low-interest rates, a well-principled approach, only to find they could not remortgage as intended. Their credit scores plummeted due to high usage of credit in a short space of time, and the debt had to go to pass remortgage affordability.
Copy

Editor
Justin Moy
Managing Director at EHF Mortgages
We see plenty of clients who would ideally need to refinance but are stuck between affordability issues, lender appetite and reducing property values. Traditional remortgages with debt consolidation every two years, with ever-increasing property prices providing high equity levels and confidence, have artificially fuelled our economy for the past 15 years. That debt cycle is obviously coming to an abrupt halt, and many have been caught with both high credit and higher mortgage rates. This is a real problem that is starting to hit borrowers hard. Inevitably, specialist lenders will become more important to the wider market, as payments are missed to prioritise living costs, taking borrowers away from High Street banks.
Copy

Editor
Emma Jones
Managing Director at Whenthebanksaysno.co.uk
Debt consolidation has become more of a conversation for clients who are assessing their outgoings due to their mortgage rates increasing. For some, this is repaying home improvement loans they had taken out on an unsecured basis. Due to a lot of the high street having a max debt-to-income ratio or max number of commitments to consolidate, we have seen some clients move to more complex lenders that will assess the case more manually. The advice always remains the same, namely to be careful about securing debts over a longer term, but for some clients, this is a way of maintaining their outgoings.
Copy

Editor
Stephen Perkins
Managing Director at Yellow Brick Mortgages
As the cost of living is showing no signs of easing, households are using credit to get by, by this is only a paster on a flesh wound and not a long-term solution. Many will now be looking to consolidate these debts, paying them over a longer mortgage term and freeing up more breathing space with hopes of making it out the other side.
Copy

Premium
Denni Tyson
Mortgage and Protection Advisor at Henchurch Lane Financial Services
Very much so, with many clients looking to consolidate loans or purchases over the last three years due to the rise of interest rates. Many are looking at consolidating in the region of £10,000 to £15,000 in some cases but combining this with household renovation projects. Due to the flexibility of mainstream lenders, I don't think sub prime lenders are getting ahead concerning overall mortgages being written.

Finally, the advice process has changed with many finding that their new mortgage payments affecting their general lifestyle. With this in mind, my advice has always been to look at the mortgage payment as a percentage of household income and ensure that clients are not going above their means. Sadly though, when there are outstanding commitments many clients are forced to turn to consolidating into the mortgage due to the situation they are finding themselves in.
Copy

Rhys Schofield
Brand Director at Peak Mortgages and Protection
Whilst debt consolidation shouldn't be entered into lightly, when clients' new mortgage payments are now hundreds of pounds more expensive, for many borrowing on the mortgage to repay those debts is the only way to make ends meet. So it's unsurprising that enquiries for this have increased hugely in the past year.
Copy

Gary Bush
Financial Adviser at MortgageShop.com
Debt consolidation has indeed been a frequent discussion over the past 12 months, due to the cost of living crisis colliding with the mortgage fixed rate chaos. As always with clients asking for advice on minimising their monthly budget from debits relating to credit cards, loans and hire purchase, they need to be made aware that the overall interest debt on doing so can often work out to be more than they were with the existing contracts. Usually, the thought of lowering their existing monthly costs to ease pressure does bring about a response of anything to help the sinking feeling they have regardless of the longer-term potential interest bill. Often these clear-up financial operations are for sizeable amounts where applicants have literally gone above their heads and made reckless decisions in the past. As long as they learn from this situation and don't simply come back a couple of years later in trouble again, debt consolidation can work out as a lifeline for clients.
Copy

Peter Stamford
Mortgage Expert at Stamford Home Finance
In response to the wildly escalating costs of living and interest rates, I've definitely noticed an increase in clients turning to debt consolidation to stay afloat financially. While it does carry its own risks and might lead to more interest paid over time, for many, it seems to be the only feasible route to avoid losing their homes. It's disheartening to see a growing reliance on complex lenders due to high-street banks' constraints. As this trend grows, it's vital for homeowners to tread carefully and truly consider the long-term implications.
Copy

Steven Hargreaves
Mortgage and Protection Adviser at The Mortgage Co
I have seen a large increase in the last 18 months in the number of clients needing to debt consolidate at the same time as remortgaging.
As a typical mortgage has increased by anything between £150-£500 per month with interest rates increasing, clients then have to look at their outgoings and consider consolidating unsecured credit, in some cases to arrange the remortgage.
A typical figure is anything between £10,000-£75,000.
It has been more obvious since the cost of living increases, which is having a double bubble effect with the more recent interest rate increases, they are all hurting disposable incomes.
I am managing to place it all to date, with High Street Lenders as long as clients have equity, income and clean credit scores.
I expect this to continue, whilst interest rates are high and the cost of living increases.