Complicated!

[Deleted User]

Not sure if posting this in the best place as it covers just about every financial product.....question is what would you do in this situation?


My main mortgage (on a house I love and want to retain) is £425,000 and due to be paid off in three years. It is interest only with a bank taken over by government that will not extend or refinance in any way. Value around £800,000. I also have £70,000 of other debt, all of which I have personally negotiated (no CAB etc.) with lenders to be interest free, paying off a set sum per month. As interest free no real requirement to pay faster except it has led to a poor credit rating. I have about £100,000 in the bank which I am keeping in the bank (gaining interest and not using to actually pay off the mortgage in case I don't have a new contract and need to dip into it), with a view to pay off mortgage but it is touch and go whether I will continue to earn at the rate I am doing now (I am a contractor working through my own limited company) - if I do I should just about be able to do it; if I don't then I might need to re-mortgage but will have a very poor credit rating. However, if I do pay off the debts I definitely will not have enough for the mortgage. I do have £70,000 in a personal pension and 5 buy to let properties - selling two would bring in around £60-70,000 equity and keeping three which have minimal equity but provide a long term income. Is it best to keep saving as much as possible and throw everything at the mortgage or to pay off other debt and aim to build a credit rating in 3 years? I am early 50's.

csgohan4

does the interest you pay on the mortgage and loans greater than the money you have in the bank?

[Deleted User]

Thanks for asking. All debt apart from mortgage is interest free. Mortgage is 2% and savings income around 1.75% (varies as in different accounts and banks) so there is a little difference but not enough to make the wrong decision about long-term.

silvercar

Is it best to keep saving as much as possible and throw everything at the mortgage or to pay off other debt and aim to build a credit rating in 3 years? I am early 50's.

Paying off other debt will just bring forward the date that is marked as satisfied on your credit history. It will remain on there for 6 years. So I don't see what you gain by repaying early. If your credit rating is shot, then you have to live with that for a few years. As such I would build up your savings, as it is unlikely you will be able to get such a decent mortgage rate in the future.

Maybe you should be giving lessons on how to negotiate debt repayments when you have savings.

[Deleted User]

Thank you for your reply. I tend to agree but wasn't sure if I was missing anything. I appreciate your thoughts.


Negotiating debt repayments - I was actually surprised how easy it was and how people were prepared to listen and accept a sensible proposal. Hardest thing was getting over my embarrassment. I didn't have any savings when I started on that but I was not asked then about savings or any times since when having a review (annually on some accounts). I am only ever asked about my income and outgoings which I always answer completely honestly. Also, some of the savings I have are in my limited company account so wouldn't apply anyway.


Thanks again for your reply. If others have different ideas though I would still be keen to listen and learn.

getmore4less

research the lender approach on end of term it may be there is a little more time.

Might mean upping the payment and they may need the property on the market but places can be hard to sell if marketed correctly and another few months might help if you can get close in 3 years.

Review expenses and cut to the bone cash, retention will be the key.

Review going down the BTL route, might have to move out and rent the place but that may be something to have as an option if the contracts don't pan out or you don't reach the target.

Would renting the place out and living somewhere dirt cheap be an option to improve the cashflow

5% gross yield on a £800k place £40kpy 2% on £425 <£10k that's £90k in 3 years.

problem is raising this sort of money(£325k) through income is hard without lots of tax not sure how much you can delay and lower average drawings with loans rather than income.

Review the BTL for profitability and real cash values after CGT.
might need to sell over a couple of years.
if their borrowing rates are high and will be selling, paying down those loans may be worth while.

[Deleted User]

Some great advice there and food for thought. Thank you.


Good point about researching approach on end of term. I had taken them at their word that the end date is the end date but of course it could take them longer to be paid if have to sell or foreclose.


I have considered letting and may do that if I don't get a contract immediately after the current one (end of this year) and if I just got the current mortgage provider permission to let for a year or two that would not require a new mortgage.


Cutting everything as much as I can already! That is why I have savings at all. Will keep doing so.


Many thanks.

silvercar

if I just got the current mortgage provider permission to let for a year or two that would not require a new mortgage.

It is interest only with a bank taken over by government that will not extend or refinance in any way.

The latter means the former is unlikely.

[Deleted User]

I have an extra question on this and would appreciate help from anyone who can advise; it seems there may be a number of ways to pay this off - 1) take dividends and pay mortgage of £400,000 from personal income


2) take a business loan from my ltd company


3) put the money directly from my company into my personal pension and take it from there to pay mortgage


Which a) means the lowest upfront figure paid in ( as I have £70,000 in pension already would that be £330,000 - 25%)? and b) means the least paid afterwards in terms of tax etc/ ?

sleepyjones

I don't know anything about this kind of thing so I wouldn't even think about offering any kind of advice ... but if you have the money and do have an agreement in place on your debts could you not offer 50% of the debt as full and final settlement in a lump sum?

I'm sure I've read about this happening elsewhere but that may only be when the debt has been sold on, someone with more knowledge will be able to help more but it could be a way to get rid of the debt at a reduced amount? (wether or not that would be a good thing for you in these circumstances, I don't know)

[Deleted User]

Thanks SleepyJones and it is possible to do that but it would not really help in my case as the debt is only an issue from a credit rating perspective and paying off half won't change that. It is more the question of how to best pay off the mortgage that I need to find out. Appreciate your input.