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The best way forward?

Hi, I would really welcome any advice on the best way forward here-

We are a married couple with 3 children under 7.
Joint income £35K
Further income of around £4K per year from hosting foreign students
Unsecured debts of £50K currently on DMP with CCCS paying £200 per month.
Also owe £20K to family but not under any pressure to pay immediately
House worth £285K with mortgage of £225K. Paying interest only. No arrears.

We have been with CCCS for over a year now and are managing the DMP well, but in June 2008 our fixed rate on the mortgage ends and going on todays rates, our interest only payment will go up by about £300 per month. We will also then be subject to any further rises if interest rates go up. This would take our SOA over the edge and leave no money for creditors. Increasing earnings any further is not an option.

We presume bankruptcy is not an option as we have equity in our home?

Ideally we would remortgage with another fixed rate, but am assuming a remortgage will be impossible given our credit rating?

If we sell (which we really don't want to) I am assuming we will not be able to get another mortgage and will have to rent?

If we sell, we will also lose our income from students.

Assuming we sell at £285, we would have £60K less fees etc. Would we be able to offer 'full and final' offers on our debts and at what percentage? And what about the £20K we owe my parents? Would it be in any way a good idea to sell and THEN go bankrupt?

Rental prices are high and properties scarce in this area- we would love to keep our home if at all possible or at least remain on the property ladder, but 3 bed homes here cost a minimum of £200K.

We had considered converting our home into maisonettes, selling one to clear our debts and shave a large amount off the mortgage and continuing to live in the other one. It is a large but dilapidated house. But we have no way to raise the capital involved and are wary about getting into further debt.

We know that it is very important to make the right decision here, but different options keep floating round in our heads. Does anyone have any advice on the best way forward for us please? :confused:
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Comments

  • Conor_3
    Conor_3 Posts: 6,944 Forumite
    It's worth talking to your lender about renegociating a fixed rate. They're more likely to go on your history with them than a credit rating.

    There is no hard fast rule to "Full and Final Offer" amounts but it's in your favour that you're on a DMP.

    What you do about your parents is up to you but if you sold up, cleared your debts, you'd have a lot more free income to pay them with.

    As for banking, can't see the need to if you sell up. If you did bank, the OR WOULD order the sale of the house as there's enough equity in it to meet your debts.
  • saverstacey
    saverstacey Posts: 175 Forumite
    I did already talk to the lender and at the moment they say there are no fixed rate deals available :(
  • saverstacey
    saverstacey Posts: 175 Forumite
    Any other advice please?
  • sammy115
    sammy115 Posts: 15,267 Forumite
    Hi - its a bit quiet this weekend, lots of people seem to be out doing other things.

    I haven't really got much advice to offer, except to congratulate you so far on managing to keep your head above water. Have you tried any other companies for a remortgage. Do you have any defaults on your credit file, or CCJ's.

    Have you also told the CCS about your change of situation. As I understand it you need to have £100 excess income to pay your creditors to stay on your DMP. Could you post an SOA and we could perhaps see ways to cut back.

    There is also perhaps an IVA to think about rather than bankruptcy. Again I am unsure of the workings behind it but it may be a better option than bankruptcy.

    good luck and I hope that somone with a bit more knowledge comes along shortly!
    Quality is doing something right when no one is looking - Henry Ford
  • cookie9
    cookie9 Posts: 764 Forumite
    Part of the Furniture 500 Posts Combo Breaker
    If you really don't want to sell have you considered increasing the term of your mortgage. Admittedly not very DFW but something to think about. You will end up in the long term paying more but the monthly charge would be reduced.

    Not sure how you have organised the rental income from your students but have you looked at the Rent A Room Scheme which would allow your rental income up to a cetain point to be tax free?

    I assume your income has been reduced since you took the mortgage out otherwise I think your lender has been irresponsible in allowing you to have such a large mortgage debt.

    Is there no chance of increasing your income? Are either of you expecting annual pay rises or bonuses? Is overtime a possibility?

    It is great to see you are looking at this problem now rather than waiting until next year. I'm sure others will be able to give you good advice. Good luck!
    MFW 91 op 2014 £410/1000
    MFW 91 op 2015 £4051/4000
    MFW 91 op 2016 £4040/4000
    MFW 91 op 2017 £812/4500
  • hypno06
    hypno06 Posts: 32,296 Forumite
    10,000 Posts Combo Breaker
    Hi there, as mentioned above get an SOA together and we can make a serious start on things!

    Get a pad of a4 paper, pen and a cuppa, and get brainstorming. Write down anything that comes to mind - what you buy, bills, what comes in, when it is easier and when it is harder, ie we too host foreign students, but don't get any income in July and August from them so those months are lean ones, in Feb and March we don't pay council tax though so those months can pay the car insurance etc. Even the small stuff needs to be accounted for.

    Anything available to ebay? Amazon? Car boot?

    Try the mortgage lender again. Write to head office if need be. Don't give up just yet!
    Successful women can still have their feet on the ground. They just wear better shoes. (Maud Van de Venne)
    Life begins at the end of your comfort zone (Neale Donald Walsch)
  • hypno06
    hypno06 Posts: 32,296 Forumite
    10,000 Posts Combo Breaker
    Also, I don't think you need to worry about tax on the student's income - it falls under the threshold for rent a room anyway x
    Successful women can still have their feet on the ground. They just wear better shoes. (Maud Van de Venne)
    Life begins at the end of your comfort zone (Neale Donald Walsch)
  • saverstacey
    saverstacey Posts: 175 Forumite
    Thanks for your replies everyone.

    I have looked through our SOA, it was compiled by CCS using their lowest possible figures so as to get us accepted for the DMP so I really don't think we are going to get it any better. Neither of our jobs have the possibility of overtime/ bonuses etc. Would increasing the term of our mortgage help, as we are interest only anyway?

    Seeing it all in black and white has made us realise I think that we need to sell. A bit worried about how long this might take as house is very old and a bit (well very) dilapidated. Also worried about rental agents refusing us after doing a credit search. We do have defaults, although no CCJs.

    I suppose we would then be looking at doing full and final offers on the debts- any idea how much we might expect to pay on £50K unsecured? I'd like to pay my parents off first out of the profits- will this be allowed? Do you have to prove how much/ or little you have to offer?

    Thanks for any further advice.
  • saverstacey
    saverstacey Posts: 175 Forumite
    Can anyone help please?
  • sammy115
    sammy115 Posts: 15,267 Forumite
    If you have no CCJ's why don't you try to remortgage with another lender. Try London and County.

    I think when you offer full and finaLS I think once you know how much money you will have as a lump sum you then add up how much you owe to your creditors and offer them a percentage based on the lump sum.

    CCS have details on their web page. Get a valuation on your house and enquire at some estate agents re your credit card.

    And |I am sure you would be able to pay off your parents first.

    And i don' think it will help extending your mortgage if you are on interest only.
    Quality is doing something right when no one is looking - Henry Ford
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