What would you do??

Lavender85

Hi, I've just joined MSE and thought I would appeal to the chat forums for some ideas.

Problem:

Sold my "very expensive to run house" about 18 months ago and bought a very run down flat with no mortgage. Unfortunately I had lots of existing debt and could not manage to pay this off. Then I had to completely refurbish the property I am my son were to live in and left myself in debt to the tune of £45K (in a combination of unsecured loans £10K and credit cards £35K )

Then in a moment of complete madness (with the £25K financed from an unsecured loan to pay off my credit cards) I flew off to Italy and put a deposit down on an off-plan flat frontline to the beach. The flat with all expenses paid is £50K (tennis courts, swimming pools, 10 mins to golf course etc etc - with a waiting list now, so my solicitor tells me, a yard long)

It is my hope to live in Italy and leave my son living in the UK in a bought and paid for flat while he is in university but with these debts this is becoming more of a pipedream in the making.

Problem is that the repayments on these unsecured loans are now mounting up and I will having trouble meeting them in a couple of months if I don't get a full time job and may need to get a mortgage (which is giving me hot sweats) but I can see no other way of reducing my monthly expenditure (of course I am a card tart !)

I have an excellent credit record but I have no permanent job (having been temping for 2 years and can show records with an income of £20K). My salary potential is approximately £30-35K and I am currently looking for a full time job.

Have a history in property and refurbishment and was thinking about buying cheap property here at auction at low profit margins and just chipping away at the debt.

Any and all ideas welcome people !

dunstonh

I suggest a mod moves this post to the debt free section as you are in need of some serious help.

I will leave the niceness to others and be the unpopular one.

You need to stop spending money unneccessarily. You are in severe debt, with low income (assumption based on part time status) and heading for big problems. Problems that are not going to be helped by shifting debt from pillar to post.

A low income with £70k of unsecured debts is not going to get you a mortgage until you get that job. That is an important move for you. At this stage, the property in Italy is an expensive move and one you just cannot afford if you want to retain the UK property.

You are lucky that you have an unsecured property to be able to sell and clear the debt but you really have to stop spending and look at this seriously. Hopefully, the fact you have posted is a sign you are willing to do it.

Have a history in property and refurbishment and was thinking about buying cheap property here at auction at low profit margins and just chipping away at the debt.

How are you going to pay for it?

MortgageMamma

On the face of it, with so little information to go off, I think you should sell your existing property and pay off all your debt, take whatever is left and either move to italy or buy another one and then be more sensible with your money.

Another option is to try and mortgage but I think you would struggle. For a start the amount of lenders you could use is restricted due to your temporary employment, and then you will have to get your secured loan companies to accept 2nd and 3rd charges etc, which they may not be happy with but its not impossible. I would envisage a higher than average interest rate/fee's though - if you choose this option, very important you use a broker - or you could just be digging yourself deeper in it

Another option is you could go to one of these companies who buy your property off you then rent it back to you - not sure this is a good moneysaving idea as they usually buy it below market value and then rent back above rental assessment value but its an option

How old is your son? is it possible he could get a job and contribute a little?

jamesd

Could you, if necessary, sell the interest in the property in Italy at profit to one of those wanting to buy it?

What are the interest rates of all of the debts, including the loan used for the deposit in Italy? What is the monthly cost for each of them and their remaining duration? What are you paying above minimum payments on them, if anything? If they are credit cards at low interest, when do the low interest periods end and what's the normal rate after that?

What is your current after tax and NI income? Total savings and investments?

What is the current market value of your current home, to give some idea of the potential for a secured loan rather than a mortgage? Note that a secured loan could force the sale of your property.

Is there a reasonable market for the property if you sold it, paid off the debts and purchased another property (WITH a mortgage!!!) to do that property up for resale? Clearing the debts like this (all of them) is what it'd take to make you a halfway decent mortgage prospect. Even then a permanent job would really be a good idea.

If you got another loan would you use it responsibly or dig yourself an even deeper hole than the one you already dug with the 25k?

On the face of it your debts and their likely repayment costs make you an undesirable mortgage borrower, but you might be able to get one at above prime rates to allow for the high debt compared to income. This may still be cheaper than the other debt repayment so might be worth considering (but selling is probably best if you want to buy another place and do it up).

From the sound of it you should:

• Find some way to reduce the cost of servicing your debts, working on clearing the most expensive ones first
• Radically cut back any spending not on debt repayments, food and completely unavoidable other costs (like taxes and costs of transport to work). For example, if you're going out to the pub regularly you're digging yourself a deeper hole, spending money you don't have.
• Get a higher paying job to make repayments more affordable
• Get a permanent job so you can get a five year mortgage at normal rates to decrease your debt repayments
• Investigate the market for selling your current home and the potential for buying another on a mortgage

Get that job as soon as you possibly can, it's the most critical step in saving yourself from financial disaster.

Selling the current flat in the UK is the next most likely to be helpful step. Then possibly using a mortgage to buy another.

Lavender85

Thanks for all the advice. Are we saying people that on an a gross income of £20K in long term temporary employment with excellent references and an excellent credit history (even though I have a lot of debt) that I could not secure a £40K mortgage on a property worth £185K? It would seems an expensive option to me sell and re-buy (which could cost me approximately £10K).

The flat in Italy is well placed to double its value by the time it is built in Summer 2008 given its prime position and in a rising market, which is why I bought it, with the idea that I could sell immediately if the situation hadn't improved and wipe out the debt in one go (I'm decreasing the debt at approximately £500 per month at present)

Definitely my focus for the new year is to secure a permanent job as my number one priority.

All my cards on low rates but with the introduction of % fees to transfer balances it hardly seems worth the hassle of continuing this process of affording debt. £40K would reduce my monthly payments to about half my salary and then I could easily afford to live.

Look forward to receiving your replies.

jamesd

A person contemplating spending 50% of their gross (?) income on debt repayment is not a good candidate, regardless of other factors. Try this affordability calculator http://www.alliance-leicester.co.uk/mortgages/index.asp?page=affordabilitycalc .

Lavender85

Thanks for the calculator, well its certainly affordable to get a small mortgage to pay off my credit cards and small loan, it's just I suppose, given your comments, whether they would lend it to me. Can't really see what risk I pose on such a small amount of money given how this debt was accrued (i.e. relocation and refurbishment expenses and a deposit for a 2nd property in a prime location which will accrue good rental income in time.)

Thanks again all.