Debt consolidation within a mortgage: implications, rules, risks and creditor arrangements

Debt consolidation means using secured borrowing to pay off other debts, usually unsecured ones such as credit cards, overdrafts, personal loans and car finance. The money can come from a remortgage, a further advance, a second charge loan or equity release. Consolidation can bring a lower monthly payment and a simpler budget. It can also turn short-term unsecured debt into long-term debt secured on the home. That is why MCOB treats it as a higher-risk purpose with its own rules. CeMAP® MRT2 Learning Outcome 3 covers the implications, the rules, the risks and the alternatives.

Key definitions

Term	Meaning
Debt consolidation	Using new secured borrowing to repay existing debts.
Main purpose	The test for several rules. A loan whose main purpose is debt consolidation triggers the MCOB 4.7A.15R suitability factors and the execution-only ban.
Credit-impaired customer	A customer with a poor credit history, for example arrears, CCJs or insolvency, as defined in the FCA Glossary.
Committed expenditure	Existing credit commitments that the lender must count in the affordability assessment (MCOB 11.6.5R).