Tough Decision to make - Help/advice

Tiptop2017

Hi all, first post here but I've read this forum so many times over the last few years and now I'm looking for some advice.

I'm a young professional with a lot of debt and feel like I'm drowning, tonight I've come up with a plan that will clear my debt and make me happier but I feel like I need an unbiased opinion (or 2) on the matter.

Story time...

I'm very lucky to be a homeowner, I purchased my house for dirt cheap with my ex while I was on a placement year at uni. The mortgage was (in hindsight) a very high rate and the area was where he wanted to be (not me) but we were okay. I left uni, got a good graduate job but cracks appeared in the relationship and I built up secret CC debt rather than facing problems at home, we eventually split up, having no savings to buy him out I got a loan to cover his half and lived on my own. I met my now partner, with his own loan and CC debt, and over the last few years, despite many budget spreadsheets, plans etc. We just seem to be in an even worse position than before and it's really getting us down. I also really regret buying so young, and never enjoying my freedom after uni, and also I hate the location of where my house is. I want to move a lot closer to work and the city centre but with our debt we won't get a mortgage for that area as it's very expensive so we need to clear the debt then save quite a sum to even have 10% for that area.

I'm now considering selling my property, to go into rented close to where I work. The small amount of equity in my house would allow us to clear CC debt up, I would live close enough to work where we could lose one car removing car payments and reducing petrol, car insurance, tax etc. by half. We would also live where we want to live and enjoy it while we are still young. I've also done the maths and we would be around £200-400 a month better off a month depending on the rent on the properties we are looking at. Once our loans are paid in the next 2.5 years, it would add another £400 to our pockets a month. This is under the assumption there wouldn't be any payrises, bonuses etc from our jobs. On assumption we save just £400 a month for next 5 years thats £24k and enough for 10% in the area we want to buy, I know life doesn't always work that way but I can see from our numbers we can have fun money and saving money with this plan while having very little debt.

My mortgage term is long, I still have 30 years on it, so the deal would be if we spent 6 years in rented, the longest term we would go to is 24 years. Therefore, we aren't paying a mortgage any longer than we would be if we stayed put.

I know everyone makes it a big deal to be on the property ladder, and I get it, but I just feel I'm drowning in debt, wasting my youth in an area I don't want to live in and I'm sacrificing happiness for social norms. I feel quite confident we could build a deposit back up and get back on the ladder before I even hit mid 30s! Oh and yes the CCs will be cut up and burnt in some kind of ceremony!

Is it a completely ridiculous idea or is it something to have on the serious ideas list?

zippygeorgeandben

I won't pass on advice regarding the financial impact of any possible decisions you make but judging by your post you don't seem happy at all in your current position. Life is for living and just because this country has an obsession with owning your own property doesn't mean you have to conform to this view. I certainly don't.

-taff

It sounds as if you haven't tackled the problem of spending more than you are enarning unless you are saying that the mortgage is what is leaving you in debt every month?

Selling and then renting closer to somewhere you can't afford to buy isn't going to help you budget better.

If I were you, I'd post a faithful reflection of your SOA to start with to see where your money is going.

enthusiasticsaver

The advantages of owning over renting are that it is more secure and you are generally building up equity as the mortgage is repaid so you are investing in an asset. Renting is also usually more expensive than paying a mortgage. Getting off the housing ladder is a big step and although you say you have done your sums I wonder if you have calculated properly.

Have you taken the costs of moving into account like legal costs and first months rent and deposit and estate agency costs on selling? Will you come out with sufficient equity to clear any debt or will you be paying rent and still paying the debt?

If you are still keeping your loans you will have to pay those regardless of whether you stay put or move to rented. It sounds as if your problem is too much debt rather than the mortgage so it comes down to how much is your mortgage compared to how much is rent. If the equity is not enough to clear any of your debts will you be better off? Living in a city close to work but still with no money may not make you any happier.

Fosterdog

It does sound like a tough decision and you are clearly unhappy with the way things are right now. There are going to be pros and cons to both of your options, the one of staying put for now and the one of selling up and renting.

Obviously with home ownership you have the maintenance costs to deal with but with renting you pay over the odds for what you actually get (my last rental was a third on top of what my mortgage is monthly now)

The one problem I can see with your moving plan is that you intend to start saving for the deposit while still paying off the debt, this is rarely a good way of doing things and it is usually better to over pay the debts to get rid of them as quickly as you can, once one debt is paid the monthly amount then gets added on to the payments of your next debt by doing it this way from highest interest to lowest it can save hundreds or even thousands in interest charges as well as cut your time of paying debt considerably leaving with the extra to save for a deposit much quicker.

Posting an SOA will help people give better advice, if we can see where the money is going and what it is going on it is much easier to advice a course of action.

LabRatty

Hi,
There are two distinct problems here, wrapped up as one:
1. being unhappy in your home
2. being in debt

Re the first problem, I think your plan has a lot of merit, mainly because you are so obviously unhappy in your home and that is not going to change. It seems to me that selling up would free you from the shared history with your ex (his choice of location, etc.) to make your own plans for the future with your partner. Losing a car is also an excellent way of reducing costs.

To sort the second problem, an SOA is also necessary, to work out why, to quote you, 'we just seem to be in an even worse position than before'. This implies that there is a spending issue as well as a historically acquired debt. It's clear from your story how you acquired your loan and CC debt, but what about your OH? - this is relevant to how you plan to sort things out.

Keeping a spending diary for a month or two will soon show you where the money's going. You will then be in a position to be realistic about future plans for saving.
However, without tackling this second stage of the process, selling your house will not on its own fix your financial problems.
All the best,
LR

DD265

Just a thought; would renting out your house and you renting nearer to work be feasible?

FBaby

My mortgage term is long, I still have 30 years on it, so the deal would be if we spent 6 years in rented, the longest term we would go to is 24 years. Therefore, we aren't paying a mortgage any longer than we would be if we stayed put.

Don't forget to take into consideration that in 6 years time, the value of the houses you are looking at might have increased. Of course, it could go the other way around, but many people got caught in the past doing exactly what you are planning to do.