Selling house to repay debt - is it wise?

vsman

We recently had to close our business with quite a big loss as a result. We covered most of the debt in the business by taking equity out of our house, but we were still saddled with a large personal loan for the (not insignificant) remainder of the loss we had from our business.

So currently we have a very large mortgage and a very large personal loan and an overdraft facility which is still used.

We could now sell our house, cover the entire debt and still have a small amount of cash left over - i.e. we would be 100% debt free. The amount of cash we will have would not be enough to buy a new house (deposit and stamp duty would invariably be more than the cash we would have), but we would now be able to save probaly 1k per month if we rent a property - so in 18 months we would save 18k, plus the cash plus the interest we would have earnt. (rental in our area is quite reasonable for a decent house or flat)

The only niggling thing is that some people keep saying "if you are off the property ladder you'll never get back on again", in my opinion this must be rubbish. We will be debt free for a while, and granted, the cash in the bank will probably not generate as much interest as the appreciation of our current house would, but we will not be paying interest to anybody, and when we have saved enough money we can just buy a new house......or have I missed something?

How will our financial status change by not being a house owner while we are renting?

Cheers for your comments

Debt_Free_Chick

vsman wrote:

The only niggling thing is that some people keep saying "if you are off the property ladder you'll never get back on again", in my opinion this must be rubbish. We will be debt free for a while, and granted, the cash in the bank will probably not generate as much interest as the appreciation of our current house would, but we will not be paying interest to anybody, and when we have saved enough money we can just buy a new house......or have I missed something?

I agree with you. You might have to get back, on a lower rung, but even the bottom rung would "get you back on the ladder".

With £1k plus the amount you would paying in rent, that would be a reasonable mortgage repayment at current rates.

And who knows what property prices will do? If they continue increase, a smaller house or a less attractive area might be your only option, for the first step back on. If property prices fall, you'll benefit though.

PoorDave

Personally i wouldn't worry about being "on the ladder".

Pay off the debt, save the money, and see where that gets you. That would be my advice.

Your current house is not guaranteed to appreciate! People forget that.

daphne_descends

Your post sounds like you've made up your mind... Don't struggle in your current circumstances because 'some people' say something.

seven-day-weekend

I think in your circumstances it would be quite sensible to sell your house.

Some people who do this won't be able to buy a house again because they won't be able to ever save enough for a deposit. I expect this is what your friends mean.

vsman

Well, we will have enough cash for a deposit, and in approx 1 year we should be able to save enough to pay for stamp duty+other expenses.

I just think that it will be much better to "wipe the slate clean" and be entirely debt free. It pains me having to pay as much interest as we do - at least £150/month for personal loan + overdraft - surely this would serve a better purpose in a savings account?

I am also assuming that as long as we have enough for a deposit eventually, it makes no difference whether we are tenants or house owners already.

Am I just being daft and worrying unnecessarily?

Alan_M_2

You're probably worrying more over the debt than anything else.

Your options are sell the house and clear it all.

If the loan is unsecured take advice about an IVA - and research the ramifications of the same. (after all, IVA's were actually devised for this scenario - i.e. entrepreneurs who gave it a go and didn't quite make it - unfortunately the system has been abused).

Or carry on as you are and clear it.

And next time, set up a Limited Company from the get go.

vsman

Well, I am not that worried about the debt, we both have decent jobs with decent salaries, it is more a question of what is the right thing to do.
The loan is unsecured, but with our employment and salaries we are unlikely to qualify for IVA, and I am frankly not interested.

We have 2 options

1) stay where we are, reasonably comfortably, servicing the unsecured debt for another 9 years while only paying interest of our mortgage

or

2) Sell up, clear every penny of debt+mortgage, put remainder of the released equity in the bank and save around £1k every month from our salaries.

Practically option 2 appears to me as a no-brainer - the only thing I am concerned about is how our financial status may change as tenants rather than home owners, and if it really is "more difficult" to buy a house (get a mortgage) if you aren't a home owner (I guess an analogy I can think of is that people often say that "it is easier to get a job if you are in a job than if you are unemployed").

sydney2002

worked for us...
sent you a message on our story, if its any use then goodluck

Rick62

Or third option, depending on all the figures, would be to remortgage, either now or in a bit, and consolidate your loan into your mortgage.

I think however it is much more than just financial. For instance do you like your house and want to stay there? If you don't like the place much anyway, and with the risk of property bbeing overpriced at the moment then selling probably makes sense. However if you like the house then selling, with all the costs, might not be the best thing.

franklee

vsman wrote:

The only niggling thing is that some people keep saying "if you are off the property ladder you'll never get back on again", in my opinion this must be rubbish.

.....

How will our financial status change by not being a house owner while we are renting?

I'm off the property ladder, not due to debts but by choice. The only problem I can see is if house prices shoot up again but as I don't think they will I'm not bothered. Frankly I think they will go down as more people struggle with their debts taken out at lower interest rates than we now have. So I wouldn't let that particular aspect bother you.