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

La_escocesa

I'd much rather be debt free! Plus, if you buy a house and do it up chances are you will build up equity in the new house quite quickly.

Other option would be to remortgage and stay where you currently are releasing some of the equity to pay off debts.

Leanne8t3

We tried to release some equity but they wouldn't let us until we stop building up debt - which we should now be able to do as mortgage is £300 a month cheaper as we changed rates and we've consolidated debts into a loan saving £100 a month and just changed energy / utilities suppliers saving £100 a month. So hopefully there will be no more spending on credit cards to get through the month. It's the 20k I'm worried about, cuz if he suddenly asks got it back we'll be stuffed. Where do u pull 20k from?!

matchboxfull

Leanne8t3 wrote: »

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

Welcome to the forum.

Where did this £42k go?

Reading between the lines, half of it was your deposit on the house, and the other half was...fees?

There must have been an element of overspending. It's really important that, before you make any decisions, you pin down how this debt occurred. Otherwise you could be in a position a couple of years down the line where you are in in a smaller house but still have tens of thousands of unsecured debt.

The loan from the friend - what was your original plan to repay the capital here? When is it due to be repaid? Does he have a legal charge on the house? (He's getting a rocking rate of interest there, by the way).

What's the deal with the car loan? You say the company pays it. Do you mean your OH gets a car allowance and he's chosen to take out a loan and use that money to repay it?

Have you taken into account the cost of selling and rebuying? Are you likely to get another mortgage/ Are your credit files still okay?

Sorry for all the questions. If the numbers add up, and you'd be happy in a smaller house, then it's not necessarily a bad idea, but you must address the reasons for the debt in the first place, especially the credit card debt.

Leanne8t3

The 20k borrowed was for the house deposit, 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. 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.
The car loan is what u said, he gets an allowance and they didn't want us having a company car so he gets 580 before tax for a car which we took out a loan to purchase.

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.

pelirocco

Leanne8t3 wrote: »

The 20k borrowed was for the house deposit, 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. 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.
The car loan is what u said, he gets an allowance and they didn't want us having a company car so he gets 580 before tax for a car which we took out a loan to purchase.

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 think yout are saying you built the credit card debt up by living off it ?

Selling makes sense , but you do need to do a realistic SOA , if only for your benefit. You also need to see what mortgage you now qualify for and be realistic what you can buy for your money , what it will cost in total , plus be able to live and save within your income

fatbelly

I definitely wouldn't transfer unsecured nonpriority debt to priority secured debt.

Other than that it's hard to advise without knowing the detail. Downsizing when you have 4 kids sounds a bit difficult unless they are about to fly the nest.

I can't understand the terms of your friend loan

HappyMJ

fatbelly wrote: »

I can't understand the terms of your friend loan

They pay £100 per month and pay it off in full when they can remortgage or sell or come into money. If they never remortgage or sell they continue paying £100 per month. Sounds quite reasonable.

Leanne8t3

The friend is a retired man who used to own the company my husband now runs that's owned by CAT. So he sold his business and ended up mortgage free with about 2 million quid. We asked if we could borrow 20k and pay him the interest he would be getting if it were in the bank. Well more, so we pay him 100 a month for the privilege but it's not being paid back until we sell / remortgage or fall into some money.
Yes the debt has built up though day to month living. But is now under control as we've lowered as much as we can and are £500 a month better off now so we will no longer be building up debts.

HappyMJ

Leanne8t3 wrote: »

The 20k borrowed was for the house deposit, 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. .

£5k....How much? Are you serious? I paid under £1,000 for all of that. £780 to be exact.

matchboxfull

Well done on reducing your ongoing costs. You said you took out a loan to consolidate the credit cards? Have you now closed the credit card accounts? Many of us on here have consolidated, only to find ourselves in twice as much debt a year or two later. It can be a good idea to reduce the APR on a debt, but it needs careful management.

I'm sorry. I know I'm pressing you on this, but I am confused about the accrual of the credit card debt in the first place. Your house-buying fees amounted to about £5k, so that leaves £17k worth of debt. Over your two and a half years, that's about £560pm overspend. You say that that was because you couldn't afford your mortgage repayments?

I'm not having a go at you. We're all here in this part of the forum because we are, or have previously been, in debt. Nine times out of ten we built up that debt by blindly overspending month on month. Not on big-ticket items, necessarily, or by being addicted to shopping, but just on living beyond our means for a period of time.

I'd urge you to fill in this http://www.stoozing.com/calculator/soa.php which you can post here if you like, so that you can be sure that you are living within your means.