65k in Debt and planning to buy a flat... Am I MAD?

santafe

I am £65000 in debt and currently have a Debt Management Plan into which I pay £1232 per month. I believe that if I stick to this plan I could be debt free in about 4 years. However I am planning to buy a Shared Ownership flat which costs £250000. I can buy 40% and pay rent (@2.5%) on the rest. As I have a bad credit history I have been offered a £100000 mortgage at 8.34%, and they insist that I reduce my DMP to £750 pm which means that I will only repay this debt in about 7 years.... I am so confused as to what to do as it seems that in the long term I would actually loose even more money. Am I right in thinking this? PLEASE HELP!

wecanhelpu

By "buying" this flat you will effectively go from being £65k in debt to being £165k in debt and have little more to show for it.

If the market takes a downward turn, flats are likely to be the biggest losers and without a major improvement to your circumstances you would find yourself in a desperate situation.

In my opinion this would be a very, very stupid thing to do.

noyk

what do you do to qualify for the shared ownership and what is your income? in terms of buying, it's not very clear why you want to do this, can you expand on this. However, what ever you tell us it still seems like a bad idea with your level of debt i'm afraid unless you have a lot of disposable income.

mightymouse

hi

What was the total debt before debt management?

Melissa177

I would be very wary of taking on more debt personally.

The fact that you are asking on here suggests you are too.

nelly_2

Whatever you have, to pay off the mortgage and rent - use that to pay off the debt quicker instead.

They mortgage people told you to 'lower payments to the DMP' cos they want your money instead.

Bargain_Rzl

Besides anything else, have you already been accepted for the Shared Ownership scheme?

The one I bought through was very thorough in its checks on buyers' financial situations, and if I'd been in your situation I doubt very much that they would have agreed to sell me a flat.

pinkshoes

It would be irresponsible to take on another debt when you already have a huge debt.

Pay off your current debt, save up a deposit, and THEN think about buying a house.

BindiBahji

santafe wrote: »

I am planning to buy a Shared Ownership flat which costs £250000

Quarter of a million pounds? That had better be one big flat!

santafe wrote: »

I can buy 40% and pay rent (@2.5%) on the rest. As I have a bad credit history I have been offered a £100000 mortgage at 8.34%

So you borrow 100k at 8.34% (at current base rates) which costs you £695 a month in interest alone - that's before you start paying any of the debt off. The rent on the remaining 150k will cost you another £312.50. Total monthly payment over £1000. And that will increase dramatically as base rates go up. And you're not actually paying any of the debt off. And what if prices fall?

What sort of place can you rent for £1000 per month?

Melissa177

BindiBahji wrote: »

Quarter of a million pounds? That had better be one big flat!


So you borrow 100k at 8.34% (at current base rates) which costs you £695 a month in interest alone - that's before you start paying any of the debt off. The rent on the remaining 150k will cost you another £312.50. Total monthly payment over £1000. And that will increase dramatically as base rates go up. And you're not actually paying any of the debt off. And what if prices fall?

What sort of place can you rent for £1000 per month?

To be honest, not much in London. A decent one bed flat.

I would also warn against shared ownership schemes on the grounds that they are all new builds, which will initially depreciate in value.

65K is a LOT of debt to be in. I would ask yourself what the cause of this debt is - are you a compulsive spender? If you are, how is splugring on a new flat going to help you? Can you pay more off your debt each month and get rid of it in a shorter period of time? I think you need to do some long term planning: the longer you have your debt, the more interest you will be paying on it, and thus the more you will be shelling out of your hard earned money.