Should I sell my house to become debt free??

melfi

My partner and I have about £15,000 debt between us. I am a SAHM hoping to get some part time work in the next months, my partner earn £17,000 and year.

This are starting to get on top of us a bit and we have got her house valued and we have about £20,000 equity.

So should we sell and rent for a bit until we save up some money to buy another house.

It seems to good to be true, is it?

ladypinkof66

I was in a similar situation to you back in 2000, i owed £30,000 (debts incurred from my ex partner) but in my name, i thought the only way out was to sell my house i had £35,000 equity, i did go ahead and sell my house, i lived in rented accommodation since then, and to be honest if i had my time again i would have looked at alternative ways, i was living on my own, so only one wage coming in similar to yours, i have not 7 years later found myself off the property ladder and there is no way that i will be able to afford another house on my own. I was relieved at the debts being paid and having a clear slate, but now regret losing my house over it, it is big decision and i hope you make the right one for your situation.

HairyHandofDartmoor

I wouldn't if it was me, because you may find it hard to get back on the housing ladder.

I wonder how my children will afford to buy houses when they are grown up, as the prices just go up and up.

It seems like an easy solution but like ladypink you may regret it in years to come. So I would only do it as a very last resort.

Why don't you try getting a part time job, cutting right back on your expenses, and that type of thing to tide you over? Your wages may well go up in the future, but house prices will go up faster than wages!

Also your mortgage payment is set (apart from interest rates, I know!), but rent goes up. When we bought our 1st house 15 years ago the mortgage was £400 per month which seemed like a fortune, but 10 years later it didn't seem so much and rents had gone up to about £600 per month for a similar house!

saverstacey

Could you sell and downsize but still buy another property?

teacup_2

I would definately not as house value is always increasing and you may have 20 grand in equity now, next year you could have 30 grand. It is your home and security , find another way economise, tax credits , host a student ( imagine how long it would take to make the increase in what your property is worth?).
However if you could move or downsize or buy something run down to do up for a bargain and clear a debt balancing it with how much work a run down place would need x

RAS

Hi

We need to see your statement of affairs to give you sensible advice.

What you would be doing is swapping unsecured debt for secure debt, effectively, so you need to be absolutely certain that you cannot pay it off any other way.

Have a look here to see ehow to do it http://forums.moneysavingexpert.com/showthread.html?t=107280

Lavendyr

teacup wrote: »

I would definately not as house value is always increasing

I'm sorry, but unless you have a crystal ball you cannot make that statement with any certainty. Look at the US sub-prime problems and tell me that could never happen in the UK. Look at how the fear of a credit crunch is already causing some lenders to withdraw sub-prime mortgages over here, and causing others to increase interest rates on their offers. Look at how interest rate hikes are slowly beginning to hurt those with debts at the moment. House prices may well continue to rise; it's not a total impossibility. But you cannot assume that "house value is always increasing" - it cannot go up forever.

ladypinkof66 wrote: »

I was in a similar situation to you back in 2000, i owed £30,000 (debts incurred from my ex partner) but in my name, i thought the only way out was to sell my house i had £35,000 equity, i did go ahead and sell my house, i lived in rented accommodation since then, and to be honest if i had my time again i would have looked at alternative ways, i was living on my own, so only one wage coming in similar to yours, i have now 7 years later found myself off the property ladder and there is no way that i will be able to afford another house on my own.

Again, this may have been very true back in 2000 and onwards, when house prices were increasing at the rate of knots. This is not necessarily the case now, however, for reasons described above. As such it is not as simple or straightforward as comparing "then" to "now".

At the end of the day, whether you choose to sell or stay, it will be a gamble. If you choose to stay, you are gambling on house prices continuing to increase (or at least, not decreasing) and interest rates not rising so high that your debt payments become unaffordable. If you choose to sell, you gamble that you will be better off than if you stay (i.e. you gamble on house prices dropping or staying the same). Neither is a certain option.

However, you have nearly as much debt as you have income - and a mortgage to boot. If you love your home and it really is a home, take that into very careful consideration and see whether you can cut back elsewhere in order to pay more off your debt. If you think you could be happy elsewhere and would be prepared to consider renting (which comes with its own benefits and disadvantages, just like owning), it may be a viable option.

I would definitely not recommend consolidating your debts into your mortgage as this turns unsecured loan into secured, and could cause you to lose your house if you cannot pay those debts.

RAS wrote:

What you would be doing is swapping unsecured debt for secure debt, effectively, so you need to be absolutely certain that you cannot pay it off any other way.

Sorry, I may be being dense here, but how is selling up and paying off debts with equity swapping unsecured debt for secure debt? It is clearing debt, not consolidating it...?

Why not post your SOA if you haven't already done so and see if you can cut back in daily life to start with?

teacup_2

No I do not have a crystal ball. I dont make that statement with certainty either, so apologies if anyone took it as the gospel.
I feel at the moment house prices have stabalised and I just had my house valued and it has gone up £60,000. in 2 years, and yes, thats right it could go down the same in the future 2 years. Personally If I was in the posters situation, I would do everything i could to keep my home economise etc etc. When you move the fees would come to a couple of thousand , so thats a couple of thousand down the pan ,(that could be paid of debt)These sellers packs are £500. pound depending on what sort of property you have , solicitors , searches etc etc as well as landlord deposits , removals etc etc. But I guess their are all different sides to it. Also when I go to the sky one day, I will leave my home to my children , help them out , they can sell it , pay their mortgages off etc etc . I feel happier knowing I own my home( well the bank as well !), but I do appreciate how hard it is for some people to get on the property ladder now and would worry it would go out of their clasp if they go of it. Especially when I read that she would have to save up some money to buy another house. I know how hard that is as hubby earns 17 grand a year.

Hope I covered everything , I am sure somebody will find something I have forgotton, or I havent covered all angles.. and yes you must take in to account intrest rate rises etc as I certainly havent lived through high ones yet, but thats not to say they wouldnt double and people lose their homes too. Could you manage if that happened too?:rolleyes:

Kevicho

Hi melfi and welcome to the board.

I think the first thing you should do is check out southernscousers post on drawing up an SOA, that way you can work out a plan which may not involve selling up.

We may be able to cut you outgoings, get you cheaper utility deals, get some yummy cashback and get you snowballing to clear the debt quicker.

Also another thing to consider is that simply selling up may not address the reasons why you are in debt in the first place.

For instance if you do decide tosell up, you would also have consider moving costs etc (as teacup quite rightly said in that loud font scheme ) also deposits if renting, will you be in a cheaper area (ie council tax/insurances), location for work friends & family (more driving higher fuel costs), basically I would look at this decision on the whole, rather than just a one off financial one.

Remember a home is a place to live, (and is a liability, albeit an essential one) it is not an investment, so wether prices rise or fall, you still will have a roof over your head.

tyllwyd

I agree with other people who have said that you have to remember the costs of moving - not only legal fees and removal costs, but if you end up having to replace curtains, furniture that doesn't fit, decorating etc, you can end up spending a lot of money (if not immediately because you move into furnished accommodation, then a few years down the line). And when you say you have £20K equity is that based on the estate agent's valuation? Because they might well be expecting that realistically you accept an offer maybe £5K below the asking price. Personally, I wouldn't rush to sell up, and I'd look into any other options first.

Storm

Hi Melfi,

As others have said, without seeing a full SoA it's hard to advise, but when it comes to property prices then no-one's going to be able to tell you for definite what the best course of action is.

One area you do need to look at though is how the debts have been run up in the first place - were there special circumstances or is it more an accumulation of several years overspending? If it's the former then selling up will free you of the debt burden and mortgage payments and enable you to save for a new deposit. However, if it's the latter then you really need to address the overspending so that you don't end up in a similar situation but without the fall back of the equity in your home.

What sort of income are you hoping to get when you go back to work? If you are getting by now on your hubby's income (however tight it's got) then perhaps with your new income you'll be able to make overpayments and bring your total down.

Good luck!