Selling up to pay off debts?

Leanne8t3

Hi,
I'm new on here so please bear with me. We finally got on the housing ladder 2.5 years ago after years of renting. We borrowed 20k from a very wealthy friend and pay him £100 a month to cover any interest he would have got and will eventually have to pay back 20k. We then got a mortgage and owe 180k on that. We bought the house for £200k. We also have 34k worth of debts as when we bought the house we didn't take in to account fees and also my husband has a company car which his company pay, but the loan for that is in him name. (So 12k loan, 22k in overdraft and credit cards)
I had our house valued last week at 285-295k. So that gone up considerably! I would like to sell up, get a repossession or smaller house and do it up or extend. There are 3 beds around the area we live for 160-180k and repossessions around 120-130k (ours is a 5 bed as we have 4 kids)
So, would it be advisable to sell up? In my head it makes sense. Pay off 54k of debts, and have around 50k to either put down as a deposit on a new house or 25k deposit and 25k for extension / work. We should be able to increase the value of a repossession to get it somewhere near 250k? My husband's worried about not having all that equity where as I'd rather be debt free
All advice welcome
Thanks

Person_one

It depends on what you're bringing in, whether you can afford to service the debts and what sort of interest you're paying.

It seems unlikely that squashing 6 people into a 3 bed house would be the best solution unless you're really desperate, and I can tell you now that 25K won't go as far as you think it will for work/extensions unless one of you is a builder?

I would suggest posting on the debt free wannabe part of the board, there are a lot of posters there who can help you work out the best way to tackle the debt long term.

Leanne8t3

Hubby says we can afford to service the debts @£700 a month. Mortgage is at a low fixed rate for the next 20 months so we are surviving but we could be living a bit more. We have 4 girls so they could be 2 in each room until we've completed the extension.
Thanks for the reply, I'll post on the debts forum

Person_one

Leanne8t3 wrote: »

Hubby says we can afford to service the debts @£700 a month. Mortgage is at a low fixed rate for the next 20 months so we are surviving but we could be living a bit more. We have 4 girls so they could be 2 in each room until we've completed the extension.
Thanks for the reply, I'll post on the debts forum

I'd be very wary of moving somewhere with that plan.

25K isn't as much as it sounds, I've just done some work on my new house, central heating, rewire, new kitchen, new bathroom and a few smaller bits and pieces, and I haven't got much change out of 20K. The last thing you want is to start a big extension/renovation project, run out of cash and end up back in even more debt to get it finished!

The folks on debt-free wannabe are fantastic, they will definitely be able to help you with ways to manage this.

Doozergirl

I'm not sure what sort of extension you expect for £25k but it won't get you too much of a single storey extension, let alone upstairs to increase bedroom numbers.

It certainly won't pay for any renovations inside in addition.

I'd be amazed at being able to buy a house for £130k, spending £25k on it and getting it to £250k without serious amounts of HPI. Sounds like an utter no brainer if that were a real opportunity.

HappyMJ

I'm actually with your husband. You're on a cheap rate I'd reconsider at the end of the fixed term. For now I would stay where you are.

Leanne8t3

I know we wouldn't be able yo do a double story for 25k but we could do a single to get it to 4 bed then later on go up. Repossessions around here (Norfolk) are fairly cheap and I know we'd have to do them up. My youngest starts school in September so I'm hoping it can be my project and I can put a lot of time into doing stuff myself decorating wise.

Pixie5740

Given your high levels of debt and borrowed deposit would you be able to get another mortgage or is your current mortgage portable? If you downsized would your family member expect their £20k back?

questionss

I agree with the others to an extent not just because I think raising the value of a new purchase would cost more than you expected. Looking at your debts - I think you need to look at your spending habits.
You've never saved a deposit. You used a family loan to get a mortgage (was this declared or was it put down as gift?), you've amassed 22k in credit card and overdraft-what has this gone for? You say you didn't take into account fees but fees (stamp duty, conveyancing and removals) would struggle to be much more than 5k

If you do move I'd def look to use the equity for deposit & fees and not try to budget for an extension as they cost more than you're thinking.

HappyMJ

Leanne8t3 wrote: »

I know we wouldn't be able yo do a double story for 25k but we could do a single to get it to 4 bed then later on go up. Repossessions around here (Norfolk) are fairly cheap and I know we'd have to do them up. My youngest starts school in September so I'm hoping it can be my project and I can put a lot of time into doing stuff myself decorating wise.

You're going to need more than £25k to do them up.

If I could buy a £130k property for a £25k deposit and turn that into a £250k property with £145k of equity having only spent a further £25k then of course it's a no brainer. A £95k profit? I really don't believe there is that opportunity.

You are more likely to spend £100k on a £130k property to get it closer to being worth £250k. Where are you going to get the extra £75k from to complete the project?

Leanne8t3

the 22k worth of debts is from costs we didn't take into account when we bought the house, mortgage fees, surveys, solicitors, that kind of thing. Which was about 5k then as we were on a higher rate our mortgage was 300 more. Which we did struggle with. We changed to a lower rate 2 months ago, saving 300 but they would not let us release any equity due to us still using the credit card. So, we have lowered the mortgage and consolidated the debts saving £400 a month and also changed our utilities so that should be another £100. With £500 extra a month now we should no longer need to use the credit card.
The £20k we borrowed was in desperation as we were in rented and the landlord wanted to sell, we had only lived here 6 months and couldn't face moving so we tried any means possible to get a deposit. It was agreed that we would pay him 100 a month for the loan and pay it back through bonuses (which hasn't happened as hubby works in the oil and gas industry) or remortgaging. No time scale given. We though that rather than him invest say 10% and he get 10% back when we sell, this was the better option.
Our credit file should be ok, we haven't defaulted on anything. We can afford the mortgage plus loans each month at the moment also.

I don't expect it to go straight back up to 250k, but if we bought a repo at 130k, 26k deposit would mean our mortgage would go from being 800 a month to 400 a month. Then the £700 worth of debts we're currently paying would be paid off. So that's £1100 better off each month, £13200 a year. So... We could save that up along with the extra 20k from the house sale and do up a property over say 5 years and hopefully have it to a decent standard that we would have quite a bit of equity in there.