The Debt Consolidation Remortgage Guide For Self-Employed Homeowners

Can I get a consolidate debt if I'm self-employed?

Yes, as long as your credit history is acceptable to the lenders it's possible for a self-employed homeowner to get a debt consolidation mortgage just as easily as an employed applicant. The only difference is in how the income is assessed.

How much extra can I borrow for debt consolidation?

It depends on the lender's appetite for accomodating remortgaging for debt consolidation.  Every mortgage provider has its own criteria for how much debt refinancing they'll allow as additional borrowing.

For example, many lenders will stipulate consolidated debt cannot exceed a specific:

• Debt to income ratio
• Amount
• Percentage of property value
• Percentage of total borrowing

Some lenders use a combination of the above factors.

What types of debt can I consolidate?

You can consolidate most legal debts by remortgaging including:

• Credit Cards
• Store Cards
• Overdrafts
• Personal loans
• Payday loans
• Car finance
• Inheritance tax liability

Are there any debts I can't consolidate?

Yes, the following types of debt are usually not acceptable:

• Gambling debts
• Tax liabilities to HMRC
• VAT bills
• Business debts

What eligibility criteria do lenders use?

Each provider has its own lending criteria and appetite for debt consolidation. More cautious banks and building societies won't accept it at all.

For those that do, the mortgage provider's decision will be based on your credit history, the amount and types of debt being consolidated, personal circumstances, and affordability as evidenced by your outgoings and self-employed earnings.

Loan to value (LTV)

With a debt consolidation mortgage, most banks and building societies reduce their maximum loan-to-value by about 5-10% . A maximum LTV of 80% is common.

From the lender's perspective, an applicant who is consolidating debts is seen as a higher-risk borrower. because statistically, they are more likely to get into debt again.

The rationale is that the chances of the applicant struggling with their mortgage payments is therefore greater. The lower LTV protects the bank or building society from making a loss if they need to repossess the property and quickly sell it at auction.

Loan to income (LTI)

The standard LTI for self-employed applications is 4.5 x single or joint earnings, but one or two providers restrict the LTI to 4 x income if clearing debts with extra borrowing.

See our comprehensive guide to self employed mortgages for information on how income is assessed for business owners, sole traders, partners and contractors.

Solicitor confirmation of debt repayment

It's understandable that a bank or other mortgage provider will want to ensure the borrower's debts are paid off with the extra funds.

The last thing they want is an applicant to still have debt payments hanging over them, as well as the mortgage.

For that reason, your solicitor may be required to confirm in writing that repayment of the debts has been made. Some mortgage providers will pay your creditors directly.

Including debts when assessing affordability

Lender policies vary widely on this. Some don't include them in the affordability calculation at all. Others don't include them if they are satisfied the debts will be cleared. Whilst a few will either include the whole debt amount or a percentage of it.

How debts have been managed and credit scoring

Before the application is approved, every mortgage company will check that the debts have been managed responsibly.

They'll want to satisfy themselves that the applicant has a good credit score, has made payments on time, and not gotten into financial difficulty at any point.

Verification checks

To verify this, a hard footprint credit check for evidence of missed payments, arrears, defaults or CCJs is carried out. The lender will also review your last few month's bank statements to see if you've used your overdraft.

You may be wondering why it would matter so much to a bank or building society, if the debts are being cleared anyway.

The reason is that from the lender's perspective, the way debts have been managed previously is a strong indicator of whether the applicant is likely to run into financial difficulties in the future. And therefore the risk the lender is taking on by offering the mortgage loan.

Get a debt consolidation remortgage quote

As you can see, there are a variety of factors involved in finding the most suitable mortgage for debt consolidation.

SEMH are an independent mortgage broker specialising in serving small business owners, including company directors, contractors and limited liability partners.

Benefit from specialist advice and niche lenders

We work with a diverse range of mortgage companies. Not just the usual high street names, but also specialist providers who are often more flexible in their approach to self-employed lending.

Get in touch today to speak to an advisor and discover how much you could reduce your monthly outgoings by when you remortgage to consolidate debts.

Call 0117 205 0655 during our office hours 9am - 5pm Monday to Friday, or enquire online here.  We'll answer any questions you have and can provide a quote and Decision in Principle within 24 hours, sometimes the same day.