Pay off debts or use as deposit for house?

b4tch_2

Hi all, I'm after your opinions on what you think we should do - we have about £18,000 saved up which we were going to use as a deposit on a new house, but after having our flat up for sale for about 1.5 years with no real sign of selling now due to the current market situation, we are wondering whether we should use this money to pay off a loan of around £4,500, and also some of my student debt (which was £13,000 and at a guess is around £11,500 now).

We have an offer that has been accepted on a house, but they have kept the property on the market as we have had no offers on our place. We don't want to lose that house, but on the other hand we don't need to move, but it would be nice to.

Princess_Jane

Is the student debt from the Student Loan Company?

If so, I believe the interest rate is pretty low and it might be worth just carrying on making payments from your salary - which I assume you are doing as the amount is going down.

Apologies if it ain't a SLC loan!

onlyroz

The general advice is not to pay off student loans early, because the interest rate is about as good as you'll get. You might want to consider paying off the other loan, especially if you're paying more in interest than you're receiving in interest from your savings.

Another option regarding your house move would be to keep the flat and rent it out. If necessary you could remortgage the flat and use the money as a deposit on the house. Whether this is viable or not depends on rental demand in your area and the likelihood of getting enough money in rent to cover the mortgage.

Oldernotwiser

Why not cut the price of your flat so that you can sell it?

Staciep88

In my opinion I would pay off that £4,500 just so you didnt have any major outgoings. I wouldnt worry about the student loan because the interest rate is so low it isnt worth worrying about. I think you should consider 'onlyroz' 's idea but I dont think that you should drop the price of your flat, you say that you dont need to move, well why not stay there til we get out of this credit crunch and property starts coming up again. That way you'll get more for your flat and it will make things a litte easier. Good luck in which ever way you go xx

pollyanna24

If I was in your position, I probably would pay off the £4,500 loan, leave the student loan alone and stay in your current flat.

Like you say, you don't NEED to move, and you would probably have to take a hit on the price of your flat in order to sell. Now is not a good time to be moving in the grand scheme of things. Wait a couple of years (sounds like a long time, but it's not really) and see how things are then.

Keep the money as a buffer in case things go completely t1ts up. That's what we are doing.

Mark-W_2

The student Loan rate was 4.8% but has dropped to 3.8%.

I would pay off the £4,500 loan and then your current loan payments can be paid into your deposit/savings fund each month where it wil earn interest rather than pay interest on the loan.

Oldernotwiser

If you haven't sold your flat in 1.5 years then it's overpriced. ( I speak as someone who recently cut 15% off a property to be able to sell it.) Who says prices will come up in a couple of years? Many people see only further falls! A time when prices are falling can be a good time to buy if you negotiate hard on the property you want to buy; you could be stuck in your flat for many many years if you expect to get what it was valued at in 2007!

angelavdavis

Pay off the loan and put £3600 each into ISAs (I am guessing you are tax payers?). You should be able to get at least 6% in ISAs which is more than you are paying in interest on the student loan.

Sit tight in your flat and continue saving, then put another £3600 each another ISA after end March.

The money will be harder to get to, so stop you from spending in a weak moment, but be earning as much money as is possible tax free.

Before you know it, having paid off your higher interest debts, you should have saved £20k toward another property.

b4tch_2

Wow, thanks for everyone's opinions and recommendations! We have already cut the price of our flat by £18,000, and if we went much lower we would make a loss on what we bought it for and wouldn't be able to afford the house we have got an offer in on (which, by the way, has dropped £33,000 since we made our first offer!).

I like the idea of the ISAs as we are tax-payers, thanks Angela, I may look into that further. My student loan is an SLC one and I have heard it is best to not pay that off so thanks for confirming that too.