Temporarily leaving the property ladder

darklord1977

Hi, myself, my partner and our 2 year old daughter are beginning to outgrow our current 2 bed house, which we have a mortgage on - We have maybe £60,000 in equity at current property value.

We definately want to move house within the next 12-18 months, but we have loans (the bulk of our debt), credit cards and overdrafts totalling about £30,000, which are swallowing up any csh we might otherwise put towards a bigger mortgage.


The idea I have come up with is to:

• Sell our home
• Pay off the remainder of the mortgage (about £50,000)
• Temporarily move in with parents or rent
• Pay off all our debts in one fell swoop with the money we make off the house.
• Put the rest of the money down as a deposit on a bigger house and start a new 25 year mortgage (I'm currently 33 and my partner is 29).

My thinking is that without all the monthly loan, overdraft and credit card payments, we'll have enough money to afford a larger house with a slightly bigger mortgage - My belief is that the new mortgage will still end up being less per month than what we're paying at the moment in combined mortage, loan, overdraft and credit card payments.

Has anyone done this? is it an 'orthodox' method of moving house (clear debts, and break the 'chain' issue, affecting a lot of movers). Is it likley to end in disaster.

On the surface, I can't see any major issues, but I need some reassurance.

Thanks!

PasturesNew

That makes sense, except moving in with family. Find a cheap/small place to rent, that's your own home. You need your own space.

Fire_Fox

Complete one of these and post on the Debt-free Wannabe board for comments. Chances are you can cut back your outgoings and increase your income sufficient to remain where you are: http://www.makesenseofcards.com/soacalc.html
How small is your second bedroom, can you squeeze in a double bed? If so buy an IKEA bed on stilts for yourselves and switch with your daughter, voila more bedroom space. Also have a serious declutter, you will need to do this for selling and for moving in with family. Sell the clutter on eBay to pay off a few debts.

goRt

It's not actually a 'property ladder', it's actually a market - prices can go up or down

franklee

Not sure what you are expecting given the lack of figures put into your OP, but to answer the question Is it likely to end in disaster., well let's see, you've run up loads of debts and think a cure is a bigger mortgage increasing the overall amount you owe. Hmmmmm, not quite sure how I see you suddenly being able to live within your means and service a bigger mortgage

You could I suppose remortgage your existing house for a bigger amount but then you would be swapping unsecured debt for debt secured on your house increasing the chances of losing the house if you can't meet the monthly payments. I'm not sure this is a good plan so as Fire Fox already said, try the debt free wannabe forum, they are better at how to manage debts.

darklord1977

Hi, thanks for your responses - some more useful than others

Here are some very rough, back of envelope figures to assist:

Mortage remaining: £50,000
Monthly mortgage repayments: £500
House Value: £110,000
Outstanding debts: £30,000
Monthly debt repayments: £800
Combined monthly mortage debt repayments: £1,300
Money remaining if house sells and mortgage is repaid: £60,000
Money remaining if I pay off all my debts: £30,000

This remaining £30,000 could be used as a deposit on a new house. If said house was worth £170,000, I would have a £140,000 mortgage, and would expect to pay around £1,000 a month on a 25 year deal - less than the £1,300 a month I'm paying now.

Of course these figures are rough, but that's the basics of my plan. To me, it seems reasonable. Moving to a bigger house is inevitable - I'm just trying to figure out the best way to do it.

Fire_Fox

By using your equity to clear your debts then taking out a larger mortgage you are simply turning unsecured debt into secured which none of the debt charities recommend. That isn't clearing your debts it's consolidating and then increasing! Have you used the snowball calculator to work out the effect of paying off your debts faster versus taking out a larger mortgage over a longer period of time? http://www.whatsthecost.com/snowball.aspx

Don't forget that a larger house will mean larger outgoings, you are not going to be a few hundred quid better off in real life. You will [STRIKE]waste[/STRIKE] spend up to £10K on moving costs (estate agent, removals, solicitor, household purchases) which is money you could be using to pay off your debts.

Running_Horse

Breaking the chain makes sense in giving more power later as a buyer, but there were many who thought like you around 2000 and found it hard to jump back on the ladder. Only you can judge that risk for your circumstances. Having owned I would hate renting or living with family, even for a short period. When you move all your equity is effectively released. Would it be possible to move to a slightly larger house and pay off all those debts at the same time with a bigger mortgage? Slightly scary, but at least all loans would be under one roof in the form of a mortgage. Probably depends on the gap in price between two and three bedrooms.

Arthritic_Toe

Personally, I would do it as I happen to believe that prices will be heading down for the next couple of years. If that happens, it would work out very well for you.

Running_Horse

But its not your money or your family. Nobody on this website knows for sure what house prices will do in the next year or ten. I might as well tell him to release the equity and put it all on red at the casino. If you have a family, then leaving the housing market is a very risky strategy, and not to be done lightly. Otherwise everyone would be doing it.

franklee

darklord1977 wrote: »

Hi, thanks for your responses - some more useful than others

Here are some very rough, back of envelope figures to assist:

Mortage remaining: £50,000
Monthly mortgage repayments: £500
House Value: £110,000
Outstanding debts: £30,000
Monthly debt repayments: £800
Combined monthly mortage debt repayments: £1,300
Money remaining if house sells and mortgage is repaid: £60,000
Money remaining if I pay off all my debts: £30,000

This remaining £30,000 could be used as a deposit on a new house. If said house was worth £170,000, I would have a £140,000 mortgage, and would expect to pay around £1,000 a month on a 25 year deal - less than the £1,300 a month I'm paying now.

Of course these figures are rough, but that's the basics of my plan. To me, it seems reasonable. Moving to a bigger house is inevitable - I'm just trying to figure out the best way to do it.

What about your income? Thing is why did you run up such big debts? Will it happen again? Do you mind turning unsecured debt into secured debt? How long were the unsecured debts going to take to pay off? If it was say five years then of course the repayments will be higher but then the debt is cleared sooner. Also are you on a good rate with your mortgage now? Any early repayment charges?