Debt consolidation is an important tool in putting clients in a stronger position – Adams

Pepper Money research with YouGov found that a quarter of people in the UK say their personal debt amount has increased due to Covid-19.

What’s more, the same research has found that 40% of adults who have experienced bad credit in the past three years have more than £ 5,000 in unsecured debt outstanding.

The cost of paying interest on unsecured debt, such as personal loans and credit cards, can quickly become significant, which means many customers find themselves stuck in a cycle of simple debt servicing without reducing. The balance.

This is why remortgage for debt consolidation can be a smart option for some and by raising additional capital to pay off their debts, clients can often reduce their monthly payments significantly.

There are, of course, considerations in converting unsecured debt to secured debt on a client’s home, but under the right circumstances a debt consolidation remortgage is the best advice for the client. .

And with so many people having increased their debt load over the past year, chances are almost every broker will be working with clients that are a consideration.

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However, finding the right debt consolidation mortgage for your clients may not be as easy as you first think.

The widespread restriction of loans to higher loan values ​​(LTVs) has been well documented and has likely impacted some of your clients.

Often times a debt consolidation remortgage will require a higher LTV to allow raising of capital and even when lenders have reverted to higher LTVs many limit the LTV when remortgage for debt consolidation.

Likewise, it is common for many lenders to include a debt-to-income ratio as part of their affordability assessment.

This could limit a client’s ability to borrow the amount they need to pay off their debt, simply because that debt is factored into their affordability calculation.

However, specialty lenders are often debt consolidation specialists, which means they are able to remove these hurdles, while doing a full and solid affordability assessment.

Used correctly, debt consolidation is an important tool in helping brokers put their clients on a better financial footing – and the best options aren’t always on the main street.

So, when you think about debt consolidation, consider taking a specialist approach.

Paul Adams, Sales Director at Pepper Money

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