Overcoming the challenges of remortgage debt consolidation caps

What I say to these advisers is that whilst some high street lenders have softened their criteria, making remortgages more accessible, this does not automatically mean that it’s the right answer for the customer.

One recent case that sticks in my mind, where a second charge would offer a better outcome for the customer over a remortgage, involves joint applicants who were over-committed on their credit cards.

Whilst the couple could afford the credit card repayments, paying in excess of £4,500 each month, they were not in a position to reduce the overall balance. To resolve this issue, the couple were looking to borrow £150,000 to clear their commitments and also raise a little extra for home improvements.

Many advisers would automatically consider a remortgage for customers wishing to raise a large amount like this, however, this form of finance would not suit the couple’s circumstances. Firstly, their existing first charge mortgage had expensive early repayment charges (ERCs), therefore raising the money needed via a remortgage would prove costly. Secondly, a remortgage may not have been an option for this couple, as many high street lenders cap advances at £50,000 for debt consolidation.

A second charge mortgage, however, would prove to be a good option for this couple as they could leave their first charge in place, avoiding penalties. Many specialist second charge mortgage lenders do not place such caps on the amount of capital raised, so the customers could achieve the sum they required.

Shawbrook was delighted to lend the couple the full amount, without any exceptions to criteria on a five-year fixed rate. This reduced the couple’s monthly repayment to £1,283, saving a staggering £3,200 per month. More importantly this second charge mortgage cleared their credit card balances and gave the customers the much-needed fresh start they wanted.  The customers could make unlimited and free-of-charge overpayments, or pay off the balance completely without ERCs, something not always offered by the high street.  This flexibility means the couple are not tied in, as they would have been should they have chosen a remortgage.

What I hope to achieve by attending events is to open advisers’ eyes to the real opportunities that lie within seconds. If an adviser is not confident or does not wish to progress a seconds deal, there are specialist master packagers out there who they can partner with to ensure that the customer achieves the right outcome and retain the customers’ business.