Supporting borrowers in making payments after an expected rise in interest rates

In September 2008, consumer credit balances stood at £208.3bn and the Bank of England Base Rate was 5.00%, but interest rates were beginning a downward trend.

Today the Base Rate is 0.50% and is expected to start rising soon, which means the unprecedented mountain of debt will become more expensive to service and, consequently, many borrowers could struggle to make their payments.

So, what are their options?

Borrowers could potentially lower their monthly outgoings by remortgaging their property to pay off their unsecured credit commitments. In doing this they can shift balances onto a lower rate. It’s also important to remember that they’ll be converting unsecured debts to secured ones and may extend the term over which they repay the balances.

But there’s no doubt that, for some customers, a debt consolidation remortgage can deliver significant monthly savings.

Here's an example of a married couple we recently helped to do just that. The couple lived in South West England, in a home valued at £275,000. The outstanding mortgage on their property was only £148,000 but they had built up a large amount of unsecured credit and were struggling to meet the monthly commitment on these debts.

They had been through a period where they encountered unexpected and significant costs, and, without savings, they built up a large amount of unsecured debt across 22 separate credit agreements. Consequently, when the time came for them to remortgage, high street banks had turned them down because they failed a credit score, even though they had good incomes and a strong payment profile.

At Pepper Money, our underwriters were able to consider the couple’s’ circumstances, including their incomes and payment profile, and agreed a debt consolidation remortgage up to 85% LTV. This provided a sum of £85,000 that was advanced directly to their solicitor, who used the funds to pay off the outstanding unsecured credit balances.

As a result of paying off these balances, the couple were able to reduce their commitments by £800 a month, which made a hugely positive impact on their lives.

As we enter a rising rate environment, it’s probable that some of your clients will struggle with their unsecured debt. Now could be a good time to contact your clients to talk about debt consolidation through a remortgage.