Homeowners may be able to raise money against the equity in their property and use it to repay existing debts. This can combine several balances into one new payment, but it does not reduce the amount owed automatically and it changes the risks when unsecured debt is moved onto the home.
Key considerations
What is debt consolidation?
Debt consolidation means taking out one new credit agreement and using it to repay some or all of several existing debts. Depending on the circumstances, these might include credit cards, overdrafts, personal loans or other eligible credit commitments. The aim is usually to make the debts easier to manage through one payment and one set of terms.
Consolidation does not write off debt. The old balances are replaced by a new debt, and any fees may be added to it. Whether this helps depends on the interest rate, repayment term, total amount repayable, affordability and what happens to the accounts that have been cleared.
How could a homeowner use equity to consolidate debts?
Equity is broadly the current value of a home minus the mortgage and any other borrowing already secured against it. For example, a property valued at £300,000 with £190,000 of secured borrowing would have estimated equity of £110,000. This is only a working estimate: a lender may use a different valuation, and the equity figure is not the amount a homeowner can necessarily borrow.
A homeowner may be able to raise funds against part of that equity through a secured homeowner loan, often called a second-charge mortgage. The new loan normally sits alongside the existing mortgage as a separate agreement. The funds can then be used to repay the debts included in the consolidation plan.
Available equity alone does not guarantee approval. A lender may also assess income, household spending, existing commitments, credit information, the property, the proposed loan-to-value and whether the new payment appears affordable for the full term.
Is borrowing against equity the same as equity release?
Not necessarily. People often use the phrase “release equity” informally to mean raising money against their home. A standard secured homeowner or second-charge loan usually requires monthly repayments and is separate from the existing mortgage.
In the UK, “equity release” normally refers to specialist later-life products such as lifetime mortgages and home reversion plans. These work differently, can affect inheritance, benefits, care plans and future housing choices, and require specialist advice. A homeowner should not assume that ordinary secured borrowing and later-life equity release are interchangeable.
What other property-backed options could be compared?
A further advance is extra borrowing from the existing mortgage lender. Remortgaging replaces the current mortgage with a new one and may include additional borrowing. A second-charge loan normally leaves the first mortgage in place. Each route can have different rates, fees, affordability criteria and effects on the current mortgage.
A remortgage may involve an early repayment charge or move the whole mortgage balance onto a different rate. A second charge has its own rate, term, payment and fees, which must be considered alongside the first mortgage. Compare like-for-like figures rather than assuming that one route is always cheaper.
Will consolidation lower the monthly payment?
It might, but a lower monthly payment does not necessarily mean a lower cost. Spreading the new loan over a longer term can reduce the monthly amount while increasing the interest paid overall. Fees added to the loan may also attract interest throughout the term.
Compare the new monthly payment, interest rate, APRC, fees, term and total amount repayable with the debts being cleared. Include any early-settlement charges on the existing debts. A useful comparison should show both the immediate effect on the household budget and the full cost over time.
What are the main risks of securing debts against a home?
Credit cards, overdrafts and most personal loans are usually unsecured. Moving them into a second-charge mortgage or other property-backed loan changes that position: the new borrowing is secured against the home. If repayments are not maintained, the property may ultimately be at risk of repossession.
Consolidation can also create room on repaid credit accounts. If those accounts remain open and new balances build up, the household could be left with the secured consolidation loan as well as fresh unsecured debt. It is therefore important to address the reason the balances grew and build a budget that does not depend on repeated borrowing.
Consider whether the combined first-mortgage and new-loan payments would remain manageable if income fell, essential costs rose or a variable interest rate increased. Equity is security for the lender; it is not a substitute for sustainable monthly affordability.
Should every debt be included?
Not automatically. Review each balance, interest rate, remaining term, settlement figure and any promotional or interest-free period. Moving a low-cost debt into longer-term secured borrowing may increase its cost. Borrowing more than is genuinely needed can also increase both the payment and the amount of equity placed at risk.
Priority commitments such as mortgage or rent, Council Tax and energy bills need particular attention because the consequences of falling behind can be serious. If payments have already been missed or there is little money left after essentials, taking out more credit may not address the underlying problem.
What alternatives should be considered first?
Depending on the circumstances, alternatives may include repaying the most expensive debts first, using savings while retaining an emergency buffer, an eligible balance-transfer offer, an unsecured consolidation loan, or asking existing creditors about affordable arrangements. A further advance or remortgage may also be relevant for some homeowners, but these are still forms of borrowing secured against the property.
If debt repayments are already difficult, speak to a free, independent debt adviser before converting unsecured balances into borrowing secured against the home. They can help review the whole household position and explain possible debt solutions without assuming that another loan is the answer.
What should I check before making an enquiry?
Start with a complete list of the debts and an honest household budget. Ask for the full terms of any proposed loan and take time to compare them with realistic alternatives. A quotation, decision in principle or estimated equity figure is not a guarantee of a loan offer.
- Obtain current balances and settlement figures for every debt being considered.
- Record each interest rate, minimum payment, remaining term and any early-settlement cost.
- Estimate the property value and confirm the balances of all borrowing already secured on it.
- Compare the rate, APRC, fees, term, monthly payment and total amount repayable.
- Check whether the rate is fixed or variable and how a higher payment would affect the budget.
- Ask whether fees are paid separately or added to the loan and charged interest.
- Consider what will happen to repaid credit accounts and how further borrowing will be avoided.
- Understand the credit search, valuation and supporting information that may be required.
- Review unsecured options, creditor arrangements and free debt advice before securing debts on the home.