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Remortgage condition to clear existing debt

Journalist: Paloma Kubiak, YourMoney.com

ended 02. August 2023

Hiya,

I'm looking to speak to/get comments from mortgage brokers or lenders relating to remortgage deals that state existing debt must be cleared before the deal starts.

Specifically, those who have clients who have selected remortgage deals with this condition - have your clients been able to clear their debt? 

Have there been many cases where the borrower couldn't clear their debt in time? What happened to them/their deal/their credit file eg mortgage withdrawn/had to apply for alternative/less favourable deal?

Generally, do remortgage deals tend to come with these conditions to clear debt, eg is this widespread? Any figures/data you can share would be appreciated.

Otherwise for borrowers with debt, what are their options eg specialist broker, stick with current lender etc?

Lastly, any general comments on how you're seeing more borrowers with debt due to the cost of living crisis, what this means for the economy/mortgages/housing market etc.

Thank you, Paloma

2 responses from the Newspage community

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Gary Bush
Financial Adviser at MortgageShop.com
Due to the cost of living and interest rate crisis lenders demanding repayment of debts to allow remortgages to be deemed as affordable by them is more commonplace. I can think of one particular client that was on a good fixed-rate remortgage offer with Halifax however he had to clear a loan before the lender would allow completion and he simply couldn't achieve this without them advancing more to be able to do this. Sadly the remortgage collapsed on that offer and the client is now agreed with another lender but due to the timelapse that had occurred and the cost of fixed rates dramatically increasing. Lenders are behaving VERY cautiously through this period and applicants looking to consolidate or handle tricky debt arrangements need to seek the assistance of a decent and impartial mortgage advice firm, with a choice of all lenders, who can help them navigate around any potential application failures.
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Scott Taylor-Barr
Principal Adviser at Barnsdale Financial Management
If the client states on the application form that the debt is to be cleared before completion (generally because they need to do this to pass the lender's affordability calculations) then 9 times out of 10 a condition will be placed on the mortgage offer that this must be done before release of funds. How this is policed is the interesting part; some lenders will want the broker/client to provide the proof they have been repaid, some will make it the conveyancer's job to check this condition has been met before they can request the funds from the lender, but sometimes no actual checks are done. This may seem bizarre, but if you haven't cleared the stated debts then it means you are in breach of your mortgage offer from day one of the mortgage; which has the potential to cause all sorts of major problems for you down the road.