Mortgages and Debt

As property lawyers, we often find clients have overcommitted their incomes and have difficulty in servicing overdraft, hire purchase and credit card debt.

Debt consolidation has become an industry of its own but, in simple terms, realigning your income to debt servicing, whilst keeping food on the table, is not rocket science. All banks are ready and able to assist their overcommitted customers. Having a single fortnightly or monthly payment to one lender results in less stress and lower interest rates than would be paid on credit card and hire purchase commitments. All debts are added to the existing mortgage and repaid over the 20 or 30 year term and the total monthly outgoings reduce considerably. To be effective long term however, credit cards and overdrafts should be cancelled once repaid.

On the positive side, parents wishing to assist first home buyer children may consider low interest deposit loans by securing the deposit against their own home. If the loans are taken out on an interest only basis, the monthly instalment is not great. The on-lending to the children and their partners is normally done by way of an acknowledgement of debt, which would be repayable in the event that the property is sold. Where no interest or repayments are required by the purchasers, trading banks usually will have no objection to deposits being provided in this way.

Loans to the elderly have been a problem area for banks for many years. Strict income criteria often disqualify potential borrowers who are asset rich but income poor. This can lead to retired couples selling their family home earlier than necessary simply to free up funds for their retirement. Family retirement loans, such as those provided by the Napier Building Society, enable the couple to borrow against the family home and enter into an arrangement with family members to support the interest payments on an interest only basis. The intention is that the capital sum is repaid when the couple sell the dwelling and move to alternative accommodation. Unlike reverse annuity mortgages which compound interest, increasing debt, these loans are on a pay as you go basis and, with assistance from the family, can provide a modest capital sum for a couple in their retirement.

For further information on loan consolidation, first home buyer assistance and family retirement loans, contact our property team.