Equity Sets the Upper Limit
Your available equity determines the maximum amount you could potentially borrow. Most lenders allow debt consolidation remortgages at up to 85% to 90% LTV. So if your home is worth £300,000 and you owe £200,000, you have £100,000 in equity. At 85% LTV, your maximum total mortgage would be £255,000, potentially allowing you to consolidate up to £55,000 in debts.
However, the best mortgage rates are available at lower LTV bands (60% to 75%), so consolidating a large amount of debt may push you into a higher rate tier. This trade-off between amount consolidated and interest rate is something your broker can help you navigate.
Affordability Is the Real Test
Even with plenty of equity, lenders must confirm you can afford the increased repayments. They'll look at your total household income, subtract your regular outgoings (including any debts you're keeping), and apply their affordability model. Most lenders use income multiples of 4 to 4.5 times your annual salary as a guide for total mortgage borrowing.
Interestingly, consolidating debts can actually improve your affordability position with some lenders. By clearing monthly debt payments of £500 to £1,000, you free up income that the lender can then count towards your ability to afford the larger mortgage. This is especially true when the total new mortgage payment is lower than your current mortgage plus debt payments combined.
Lender Policies on Debt Consolidation
Different lenders have different attitudes to debt consolidation. Some will happily consolidate any amount up to their LTV limit, while others cap the debt consolidation element at a specific amount or percentage of the total loan. A few lenders won't allow debt consolidation at all on their most competitive products.
Some lenders also have rules about the types of debt they'll consolidate. Most are comfortable with credit cards, personal loans and overdrafts. Some may have restrictions around payday loans, gambling debts, or debts in arrears. Your broker will know which lenders match your specific debt profile.
Maximising Your Consolidation Amount
To consolidate as much debt as possible, consider these strategies:
- Get an accurate, up-to-date valuation of your property — if it's worth more than you think, you'll have more equity to work with
- Pay down any debts you can before applying, to improve your affordability score
- Ensure your credit report is accurate — errors that make your financial position look worse can reduce what you're offered
- Work with a whole-of-market broker who knows which lenders are most generous on debt consolidation
If you can't consolidate all your debts into the mortgage, prioritise the highest-interest ones. Clear the most expensive debts through the remortgage and manage the remainder separately.
Important: Your home may be repossessed if you do not keep up repayments on your mortgage. There will be a fee for mortgage advice. The actual rate available will depend on your circumstances. Think carefully before securing other debts against your home.