Case study: Secured loan gets client back on sunny side of the street

by: Martin Stewart, director, London Money
  • 25/08/2016
  • 0
Case study: Secured loan gets client back on sunny side of the street
Director of London Money, Martin Stewart explains why a secured loan squared a debt consolidation circle for clients with a good credit score.

Often with a second charge mortgage the solution needs to be explained to the borrower more as if it were a stepping stone to a brighter future rather than a fait accompli , or a one-way street and a dead-end one at that.

I touched on the high levels of personal debt in a previous case study and this one is similar but in different ways.
One of our broker introducers enquired about his client’s situation. At first glance,  we struggled to see why he needed our help and thought the first charge market could help.

There was nothing abnormal about the clients – good credit score, good income, basically good people. They even had savings – yes, I know, we should really have had them stuffed and mounted on the wall.

Their current mortgage was £227,000 with a monthly repayment of £1017 . Their fixed rate came to an end and they wanted to remortgage and consolidate the debt they had built up. This wasn’t lifestyle debt, this was debt accrued from renovating the property. In other words, improving the overall security they wanted to secure the mortgage on.
But who doesn’t want a little more financial wriggle room in their life? Putting the debt on a low cost repayment mortgage over a longer period of time is sensible. Yes, the argument that the longer they do that for the more interest they pay is obvious but, as the saying goes, the rich plan for tomorrow the rest of us for today.

However, after what seemed like an eternity for our introducer he couldn’t find a lender that would help.
Why? Well, they said the client was over-indebted. The cost of servicing the debt was £1,381 per month. Consolidating would have reduced that significantly. Unfortunately, sometimes in the first charge world, three- dimensional underwriting is a rarity. The argument that cash flow would be improved as part of the remortgage was irrelevant. It was simply that the debt was there in the first place.

The broker was aware enough to look at a second charge as an option. His first enquiry though was met with fees of around £5,000. We prefer the broker to set his or her own fee which they feel is appropriate for their client’s situation and for which they receive a fair return for the work undertaken.

The LTV was high at an overall 84% but monthly savings were still created. However the broker, us and the client all knew this deal was not about the rate, it was about a means to an end. Long story short, the client redeemed some nine months later and secured a great remortgage rate of 1.93% and is now over £1,000 a month better off. I daresay some of that will find its way in to the economy. Lets hope so anyway.

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