This case study illustrates good practice when assessing affordability on re-mortgaging to consolidate debt.

Firms should assess whether a mortgage is affordable throughout the term. When consolidating debt, it is important advisers identify all the customer's debt obligations and are certain which ones will be consolidated.  They can then include any unconsolidated debt as a non-mortgage expenditure item in the assessment of affordability.

Customer circumstances

Jack and Emma Morrison had a number of high interest unsecured debts and were struggling with the repayments. They decided to re-mortgage their property to consolidate all the debt.

They have one child at primary school and the other attends nursery. Jack is a self-employed painter and decorator and Emma works part-time in a care home.

At the time of enquiring about re-mortgaging, their existing mortgage had an early repayment charge of £4,000 with 12 months before it expires. The firm charged a fee of £1,000 for advice. Due to their financial situation the Morrison's decided to add all fees and charges to the new mortgage.

Good practice

The mortgage adviser obtained a copy of Jack's accounts for the last three years to confirm his income and copies of Emma's pay slips from her employer.

Also obtained were copies of 'notice of award' to verify the amount of working tax credits/child tax credits. The adviser verified income and benefits through copies of their bank statements. This ensured there was no doubt over the disclosed incomes and the adviser was able to obtain a 'full status' mortgage.

Before the first meeting with the adviser, Jack and Emma received a 'checklist' from the firm confirming the documentation to bring to the meeting.  This included a copy of Jack's accounts, Emma's pay slips, bank statements, details of existing mortgage including early repayment charges, details of all their debt obligations etc.

The adviser explained the importance of giving details of all their debt and forewarned Jack and Emma he would be asking them which debt they wanted to consolidate, so they should be thinking about this.

The adviser completed an affordability assessment knowing there was no debt payment left over to factor into non-mortgage expenditure. The adviser was also confident that after adding fees and charges to the new mortgage, the amount advanced would still consolidate all of Jack's and Emma's unsecured debt.

The adviser demonstrated the re-mortgage was comfortably affordable at the initial interest rate but was marginal on the standard variable rate (SVR). They discussed this with Jack and Emma who were happy to proceed as they believed Emma would by then be in full time employment (these discussions were documented on the file).

Good and poor practice case studies

• Case study 1
• Case study 2
• Case study 3
• Case study 4

For more information

Affordability – your one-minute guide
Affordability factsheet