Debt for home improvements

yellow218

Hi.

Hubby and I have always been pretty smart when it comes to finances. We were consious to use credit when we were students to build up our credit score, but always made sure we paid them off in time. Other than that (and student loans) we have never really used credit, and we're good savers saving for a house deposit and wedding simultaneously.

We do use a reward credit card for daily spending instead of using our debit card, we make sure we pay it off every month so don't get charged interest, but do get points (so we can treat ourselves in our favourite department store).

We bought our first home about a year after we got married, renting for 6 yrs until that point. We got good advice from parents and a mortgage broker before committing to buying our home and to consider what mortgage options were best for us. We were informed we had a very strong credit rating.

We ended up buying the worst house in the best area. It was certainly structurally sound and was liveable but needed improvement. We viewed this positively- a chance to do some diy and invest in our home. The house was priced accordingly but our mortgage was still relatively on the high side due to being first time buyers and having a relatively small deposit(only 10%). However I was mindful that we had tracked all our spending for three years previously and had researched well so we knew we could live there comfortably.

We do meet mortgage payments, bills and living costs within our income. We did used the majority of our savings as a deposit, and as I mentioned the place needed improvment. We thought about getting a loan (which was available to us) but this obviously charged interest, so we looked around a bit more, and found (on this site) some long term 0% credit cards. We have therefore completed most of the work required but have done so largely using credit cards (0% interest I might add). We have invested about £14k on the house so far, but I think it has been worth it.

We are conscious that the CC won't stay at 0% forever, and so we pay into a savings account each month so we can pay off the card before the term ends (stoozing i think its called?) we have direct debits set up to pay off the minimum each month.

We viewed this as 'good debt' as we can afford to make the payments and it has invested in the house. In the long term it will also help us financially as will increase the property value. According to Zoopla the house price has increased by £77k since we bought it 2 years ago (but this obviously does not take into account the improvements we have made.)

It also means we have a nice comfortable home and a sense of satisfaction from doing the majority of the work ourselves. (Helpful having best friends and relatives in the trade to do the bits we can't)

Now here is the predicament. Most of the improvements have already been completed (certainly the most costly have!) There is one more room I would like to complete soon- the bathroom. As mentioned we would do all the work ourselves (as far as building regs permits!) but the materials obviously come at a cost. I have estimated £2k for the materials.

Unlike some of the other projects, we can not do the bathroom bit by bit- we can't go without a shower or toilet. To do it in one go would mean we need that £2k available to us before we start.

I have a few questions and a poll (Poll answers 1,2,3- if you have other solutions id be very grateful)

1). Do I add the bathroom material cost of £2k onto a 0% credit card subsequently increasing my total debt (excluding mortgage and student loans) to £16k it?
2) or do i save up the £2k as cash. This would mean not 'paying off' for a couple of months. and subsequently the 'length' of debt remains (i.e. the amount of time needed to pay it off.
3)Or do I not take any action. Leave the bathroom as it is, continue to pay mortgage and CCs as planned, then save for the bathroom when I have less debt.


Further Questions
4) How much do you trust Zoopla's estimate of house prices?
5) My initial thoughts were to finish the house (and therefore the valuation would be higher), remortgage (to get a better LTV ratio) and reduce of mortgage payments. That way we can enjoy the home, but have smaller mortgage payments, and can therefore pay off the CC debt sooner. What do I need to consider when remortgaging?
6) if I had £16k on 0% interest credit cards (with evidence of payment etc) would this negatively effect my credit rating and therefore mean i couldn't remortgage anyway?
7) How much debt is too much?

Am I being impatient/greedy, or would it actually make sense financially to improve the bathroom now?

Thanks in advance

mgarl10024

I choose 3. I'm old fashioned.

Unless the bathroom is a health hazard or is not functioning, I would wait until I had the money before doing it. If I did have the money however, I would still stooze as I could make money on the difference.

6) I'd avoid applying for cards on the run-up to the mortgage application. If they are too close together, this may have an affect.

TrixA

I would also tend to choose 3, but it would depend on how much disposal income you have after paying the mortgage and therefore how long it's likely to take you to pay off the additional debt. £16k debt on an income of £20k is pretty different to £16k debt on an income of £100k. I imagine this debt might also be relevant in the context of remortgaging.

If you're worried about the valuation, whether the bathroom is done up or not will make a negligible difference, unless it's not functional at present. Zoopla valuations are notoriously inaccurate.

katejo

Too late to vote but definitely no. 3. I wouldn't do any non essential work until debts had been cleared. Even then I would save at least half the cost before using an interest free credit card for the rest. I don't pay a penny of interest if I can possibly avoid it!

Errata

3. because nobody has a crystal ball, including you.

racing_blue

Before tarting up the loo, I would want all CCs paid off + 1 month salary in current account + 3 months salary in savings account.

Maybe it would get a lick o' paint and a clean in the mean time

Loopy28

I would definitely clear your credit cards first.

Talking from experience, me and hubby built up a lot of debt through our late 20s/early 30s. We have recently managed to pay off 8k debt on credit cards and just have one monthly loan repayment left that will end in just over 4 years.

Other than a mortgage I now get nothing on finance/credit as it is so easy to just keep mounting up little amounts until it is a large amount-that is how I ended up with 8k on CCs, a little bit over 6 cards, which I didn't realise was so much until I totalled it.

All it takes is for an unexpected change in your financial situation and you can end up not being able to pay it all and ruin your credit rating indefinitely.

I desperately need a new car, mine keeps breaking down and I drive 300-400 miles a week for my job. But as desperate as I am, I am saving for it- £500 a month.

That said, ultimately it is you decision and depends how important a new bathroom is to you straight away.

TBagpuss

What is your net debt? (i.e. how much is the total balance on the credit cards less the total amount you have saved to pay it off)

I personally would definitely not borrow any more, particularly on credit cards where the interest rates are likely to be very high once you do start paying interest, unless you already have enough to be able to pay off the existing debt in full.

How long will it take you to save up the extra £2,000?

greenval

I feel very old, or old fashioned or both. When I bought a house, on my own, that needed a lot doing (30 years ago) I saved up until I had the money to do the jobs . My furniture was second hand. It took years to get everything done but what I did have was a sense of satisfaction and what I didn't have was debt, other than the mortgage, hanging over me.

hazyjo

I'd go with 3 too. That's actually quite a lot of debt you have IMO. Mine O/D's up to £2k with stuff I've done to my house and I'm in panic mode and now desperate to get it back to zero!


As for no 4 - do NOT trust zoopla's 'guestimate'. It may give you a vague estimate as you've only been in a couple of years, but if nothing nearby has sold recently, it's still totally unreliable. As a poster always says, search this forum for 'zoopla rubbish' and you'll see what I mean. It overvalued a house I once bought by well over £100k, maybe nearer £200k. Have heard similar stories on here. There is no mathematical calculation to establish a house's value - all it can do is go by the area's general rise or fall in property prices, and compare against properties sold nearby. There are many things it doesn't take into account.


Jx