Use capital to pay debt to get access to lower rates?

marliepanda

You don't have savings, you are still at a net deficit. That's the first thing a bank will look at.

DCFC79

robjl wrote: »

Agreed, but contained within my outgoings is £850 rent, so it's one in one out, plus I get £20000 a year in bonuses in addition, which allows me to put savings aside

Should you banking on the bonuses ?

CKhalvashi

robjl wrote: »

Agreed, but contained within my outgoings is £850 rent, so it's one in one out, plus I get £20000 a year in bonuses in addition, which allows me to put savings aside

£850 a month is pretty reasonable considering you dont have that much in the form of outgoings on the property.

My property needs £12k of work done to it in the near future; if the same happens to yours, then your landlord would be responsible for it. It could long-term turn into a structural issue if not sorted, so that's not an 'I want' work, it's a 'the property needs it' one.

Even with £850 a month rent, £2500 a month outgoings for 2 people (even taking into account the current levels of debt) seems pretty high, if I'm honest. If I were in your position, I'd be looking to get that to £1500 a month, before petrol/diesel/train fares and debt repayments, and using the savings to reduce this as soon as possible, to minimise interest payable.

I'm leaving (assuming average-ish CT/gas/elec/water/phone) about £100 a week for food/clothes/haircuts/etc, so bearing in mind we feed 4 on about £80 a week and average maybe £20-30/week on the others through the year, this should be doable.

CK

katejo

robjl wrote: »

Agreed, but contained within my outgoings is £850 rent, so it's one in one out, plus I get £20000 a year in bonuses in addition, which allows me to put savings aside

So why haven't you paid off your debts before now if your bonuses are that high? If you were to become ill suddenly or have a major accident you would be really stuck. Your previous high income would suddenly become irrelevant.

robjl

katejo wrote: »

So why haven't you paid off your debts before now if your bonuses are that high? If you were to become ill suddenly or have a major accident you would be really stuck. Your previous high income would suddenly become irrelevant.

As said previously, new job,

ermine

robjl wrote: »

As said previously, new job,

Congratulations on getting a better job - this is the first step in financial self sufficiency and the most important one in many cases.

If I pay off everything ASAP as you suggest then I will have paid another years rent for nothing, and then I have at least another 6 months or so before I can get the required deposit together to buy,

You won't listen to this, because I was once in your shoes and I didn't listen either, but at least consider it. Another era, house prices racing ahead, a young fellow who had just got a better job. The year - 1989. Nowadays it is Help to Buy inflating prices to stoke an election, then it was Nigel Lawson ending MIRAS for couples. And I didn't want to pay rent for nothing, rent is dead money, etc etc etc. The song remains the same, even after a quarter of a century.

I did similar to you, but in those more innocent times I got away with borrowing £10,000 interest-free and fee-free on an MBNA to pump up my deposit, and bought a house on a low-start mortgage. With an endowment, though that's not the primary mistake. Buying a house when everybody says prices will go up for ever was. I had a 25% deposit using that wheeze, MBNA got all their money back and I didn't pay interest because I focused on that at the beginning of the low-start mortgage.

And then I sweated through many years of negative equity. Imagine the soulless feeling of throwing money into paying a debt. Renting is dead money. Unless it isn't. I would have gotten the most stupendous ROI on a couple of years of renting.

Nobody knows the future, house prices may continue to rise, though I do wonder what on earth people with pay their mortgage with as price to earnings ratios increase. Perhaps we will go to longer mortgage terms or Japanese style intergenerational mortgages. If you are in London perhaps they will rise endlessly and you are doing the right thing because your competition has endless pockets of foreign money.

Live intentionally. Take a view on the world and where the economy is going. Know why you say 'renting is dead money'. I own my house outright, but I have still, at the end of my working life, paid more into the mortgage than I would have from a working lifetime of renting the sort of house I live in.

Owning a house is an opportunity cost and a mortgage is money rented from a bank. If I invested the price of my house I could get an income on the money that would roughly pay the cost of renting the house just like mine that is to let across the way. Buying the house you live in is not the only way to stop having to work to pay for accommodation, and owning a house comes with lumpy capital outflows to keep it in good condition against the British weather - landlords estimate about 1% of the house price needs to be spent on maintenance every year, and over the years I've found that about right. The lumpiness means that you get a few years off and then have to catch up.

You don't hear much from people who have experienced that you can lose money on houses, because they feel stupid when everybody else says house prices can only go up. Negative equity caused untold misery for millions of British people in the early 1990s.

I am middle-aged now. Buying a house at a high was the greatest personal finance mistake in my whole life and I made it in my late twenties. I was lucky - I didn't lose my job in a recession and I worked steadily for one employer for nearly 25 years, I never defaulted, never paid late. That's an unusual pattern of work nowadays.

Whatever you choose to do, good luck. You probably would be better off discharging your loans before taking out a mortgage, because it appears mortgage firms have gotten wise to the trick I pulled of borrowing money to make my deposit look like 25% instead of 15%.