To buy or to rent, that is the question...

confusedcouple

I wonder if users would be kind enough to post their advice/comments/suggestions on our situation? Apologies in advance for a long post but we wanted to give all the relevent information.

My wife and I are 35 and 34 respectively and we desperately want to buy our own home and also improve our debt situation. We’re are going round in circles trying to think of a solution to our complicated situation and really don’t know what we should be doing to reach our aims.

We currently live in private rented accommodation. The rent is £800 inclusive of electricity and water.

We have the following debts:

GM credit card @ 19.9% APR - £9,701 (£11,000 limit)
Capital One credit card @ 19.94% APR - £2,446 (£2,750 limit)
Capital One credit card 2 @ 29.94% APR - £451 (£500 limit)
Egg credit card @ 16.9% APR – £2,785 (£2,900 limit)
Nationwide loan @ 6.7% APR - £11,509 – down from original balance of £17,001 in Oct 2004
Overdraft @ 16.79% APR £1,376 (£2,500 limit)

Each month we spend £742.91 servicing the above debt, paying just a very small amount over the minimum payments. For the last 8 months our joint net monthly income has been around £2850.00 give or take expenses claims.

I have recently been offered and accepted a new job (salary: £29,000), higher up on the career ladder that I’m steadily climbing. The location of this job means we will have to move house, although in the short term (1-6 months perhaps), it is commutable (around an hour one way). My wife's current employment contract is due to end in mid-February, so she will look for work in our new location and commute with me. Her current salary is £20,000. Her new salary should remain about the same.

We have accrued our debts following a house move, change of job(s) with breaks in employment, and getting married. My wife is also a discharged bankrupt (her date of bankruptcy discharge was June 2003).

We are very aware that we need to reduce our debts, and have been monitoring all our outgoings and income using Microsoft Money since October last year. We are keeping up-to-date with our payments, but only just, and are only able to make very minimal savings. We would not able to cope with a large bill for car repairs, for example and have no spare money for savings or luxuries like holidays, new clothes, updated car etc.

I have recently applied for a loan with the Nationwide in an attempt to rationalise our debt (i.e. pay off the higher interest rate credit cards), but this was refused. I obtained a copy of my statutory credit history, which shows a total of 3 late payments in the last three years and none in the last 6 months (I accept this is correct), but we still aren't shown as being on the electoral register. We moved in our current home and registered on the electoral register in May 2006. I am getting the electoral registration information for Credit Reference agencies sorted out at the moment. We are applying for a copy of my wife's credit history, as she is of course linked financially to me and vice versa.

We also need to think of moving house and really this is our dilemma: can (should?) we get a mortgage? We have no deposit - should we go for a 105% mortgage (for example), to cover expenses and rationalise our some of our credit card debt? Should we be borrowing more money, despite the fact we're in debt now? Isn't a mortgage one of the cheapest ways to borrow money? Who should we see about a mortgage - should we pay for advice, or go the commission route? Should we just ask a mortgage advisor in an estate agents or go to a financial advisor?

Given her previous financial history, my wife is particularly anxious to avoiding worsening our financial exposure but is torn by wanting her own “nest”. We'd so love to own our own home and not be putting £9,600 of rent each year into someone else’s pocket when we could be buying some equity for our future. The area my new job is in still has relatively cheap house prices - we could, or should, be able to afford to buy, in theory.

Do we continue to wait as we have done for the last 3 years, reduce our debt, but run the risk of losing possible gains in house prices? Should we maximise the opportunity we have of moving to an area with very reasonable house prices? We're willing to buy something that needs work - maybe a lot of work - so we should be able to accentuate any house price increase through adding value in that way, too. My new employer is willing to pay for removal expenses, but only once - if we moved to the new area to rent, and then bought, they wouldn't pay for the second move. This is encouraging us to think in terms of "one move".

What do fellow forum users think?

Many thanks in advance for any suggestions or advance.