Releasing Equity For Debt Consolidation Has Increased

by | Tuesday 7th Mar 2023 | Mortgage News

2022, going in to 2023 has been an incredibly difficult time for many people. The current economic crisis that we find ourselves in has tightened a lot of people’s purse strings, eaten up savings, and has unfortunately left many worse off than they were before. As a result, hardworking people are finding themselves with more debt that they anticipated as they have to take out finance to cover rising costs. To resolve this issue and ease the strain of mounting debts, people are starting to explore the idea of debt consolidation linked with a new mortgage. In the last few months, we have seen an increasing number of people releasing equity for debt consolidation.

What Is Debt Consolidation?

Debt consolidation is a way of clearing several debts by consolidating them in to one commitment. This can be done in many ways, but an increasingly common method is to do this by taking out a new mortgage. Here is an example of how this could potentially be done.

Say that a person has £10,000 on a credit card, £12,000 outstanding on their car and £3,000 on a store card. They also have a mortgage of £200,000 that they pay per month. The debt adds up to £948 a month for the mortgage and an extra £500 a month for the extra debt. So £1,448 a month which they are really struggling with.

After speaking to a qualified mortgage advisor, they determine that they are able to remortgage their property up to £225,000, using the extra £25,000 borrowed to clear all the other credit commitments. This extra £22,500 on the mortgage only adds another £119 a month on to their mortgage payments. So, in total they would pay £1,067 a month for their mortgage and will have no other credit commitments outstanding. Saving them an extra £381 a month or £4,572 a year. This of course is not an option for everyone and people need to meet certain mortgage affordability and criteria requirements. That is why it is always important to speak to a mortgage advisor before making any decisions.

Office Of National Statistics And Debt Consolidation

The office of national statistics (ONS) have announced that their recent research has shown one in five homeowners with a mortgage have borrowed money for debt consolidation, like the scenario we have mentioned above. They also expect that the number of people only considering this option will increase too within the next year. What does this show exactly? Well this shows that, of course people are really struggling with the cost of living and with debts at the moment. But, it also shows that there is a simple enough way out of debt that people can and are benefitting from with the help of a mortgage advisor.

It also shows that the mortgage market is still a competitive one and people are making the most of decreasing interest rates to reduce their monthly credit commitments. As we have already mentioned, debt consolidation is not the answer for everyone and not everyone will qualify. But if you or someone you know is a mortgage owner and are struggling with other debts, loans, credit card balances, store card balances, it is worth having a conversation with one of our experts here at Oportfolio. Give our team a call today for a free initial consultation. 

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