Sell or keep paying debts

katrss7

I have a property that I no longer live in that currently has one lodger in and is costing me a fortune. I have decided to either rent out the property as a whole or to sell it.

I have a £15k debt at 12.6%, owe my parents £6.8k at 0% and a credit card with £1k at 0% for 14 months.

I have equity of approx £85k in property.

Should I sell, pay my debts and invest the money or rent and pay off as much of the debt as I can as quickly as possible?

Any advice would be very welcome.

tallyhoh

where do you live at the moment? is it your only property?

katrss7

It"s my partners house and yes it"s my only property.

tallyhoh

If you live with your partner I would be inclined to keep the house & rent it out. Might be difficult to get a mortgage again should you need to.

Sazzie23

I think its good you've realised you need to do one thing or the other, part renting at a loss is not an option... do you pay rent for where you live?

katrss7

Thanks for your answers to date. No I do not have to pay rent where I am currently just a percentage of bills.

sourcrates

I`d rent it out as a whole for now, see if that improves your finances, then at a later date you can always sell up if you need to, but in this day and age its good practice to have something to fall back on !!!!

katrss7

Many thanks everyone for their comments - I'm leaning towards renting it out, particularly as the interest rates for savers are so low at present and as recommended maybe look at selling it later. If I'm lucky the house will rise more in value than the interest I'm paying on the debt.
The one aspect I haven't mentioned is the prospect of being absolutely debt free - I could do this by selling the house. Like most people I've been in debt of some kind since I was 23 (now more than double that). If I could ensure that I paid the same amount each month as my mortgage payment into a secure savings account, bearing in mind that my property is unlikely to rise much in value due to it's relatively low cost - surely this would ensure a higher return than keeping the property?
Any comments would be welcome

kissjenn

Hi,

You've a number of options (always a good thing). Really depends on how safe and secure you want things to be.

You could keep the house but release enough equity to pay off your credit card (interest rate I imagine well outstrips mortgage rate) and parents (only you know how urgent or not that debt is).

That would push up your monthly payments but not by as much as your debt payments.

Also the portion of your mortgage that's interest can be offset against rent for tax purposes but you'll also have to get specialist insurance and check your lender is happy for you to do this.

The rental "profit" you make will be added to your normal income and so you'll pay more tax, may lose benefits etcs. You may want to check that one out. The loss you've made so far this year can be offset against remainder of the year if you start bring in more and and residual loss carried to next year also. Again time for some homework I'm afraid.

All of the above would keep the house in your possession and reduce your debt payments whilst upping your income.

If you sell the house you may be liable for Capital Gains Tax if it's not your main place of residence. Again worth checking. It may lie empty for a while as you'd be advised to sell without a tenant or lodger in place.

Also, how secure do you feel in your job and relationship? (You don't have to answer that here - just in your head). Would you feel happier with a bolt hole? Would you feel happier knowing you still had a minimum of £60k equity and no debts if you had to move out tomorrow? What would make you sleep securely at night? These aren't warm, loved-up questions but be aware of the potential implications of bring a large sum of money into a relationship if it's unmatched.

Hope there something in there that helps.

katrss7

kissjenn wrote: »

Hi,

You've a number of options (always a good thing). Really depends on how safe and secure you want things to be.

You could keep the house but release enough equity to pay off your credit card (interest rate I imagine well outstrips mortgage rate) and parents (only you know how urgent or not that debt is).

That would push up your monthly payments but not by as much as your debt payments.

Also the portion of your mortgage that's interest can be offset against rent for tax purposes but you'll also have to get specialist insurance and check your lender is happy for you to do this.

The rental "profit" you make will be added to your normal income and so you'll pay more tax, may lose benefits etcs. You may want to check that one out. The loss you've made so far this year can be offset against remainder of the year if you start bring in more and and residual loss carried to next year also. Again time for some homework I'm afraid.

All of the above would keep the house in your possession and reduce your debt payments whilst upping your income.

If you sell the house you may be liable for Capital Gains Tax if it's not your main place of residence. Again worth checking. It may lie empty for a while as you'd be advised to sell without a tenant or lodger in place.

Also, how secure do you feel in your job and relationship? (You don't have to answer that here - just in your head). Would you feel happier with a bolt hole? Would you feel happier knowing you still had a minimum of £60k equity and no debts if you had to move out tomorrow? What would make you sleep securely at night? These aren't warm, loved-up questions but be aware of the potential implications of bring a large sum of money into a relationship if it's unmatched.

Hope there something in there that helps.

Hi Kissjen, thanks for your comments. I had not thought about extending the mortgage to include the debt. My parents are happy for me to pay them off as I'm able and at 0% It makes sense for me to keep that informal. My mortgage rate is due to rise to 5.4% after six months of renting my property out - this still is a far better rate than I'm currently paying on loan. This extra interest payable due to renting ( and indeed the extra interest on the raised mortgage) as you say is offset against tax payable on income from the property. Renting seems more and more attractive.... And this would free up income to either pay my parents off sooner or pay extra off the mortgage to shorten the term. I haven't yet investigated the extra cost of insurance or whether I'd have to pay capital gains tax on selling if I rented it out. I'll look into those this week. Thanks again