Getting back on the ladder

andy0608

My wife and I are looking to up size from our one bedroom flat and have seen a few houses that we like but we have around £20k worth of debt. We have got a very good offer on our flat but we are still around 18k shy of what we would need to buy the house that we would really want. We would plan to pay the debt with the proceeds from the sale and save to increase our deposit. I wondered if we sold and then reapplied for a mortgage in 6-12months if it would be difficult to get back on the ladder? Any advice welcome...

Thanks

EssexHebridean

OK - correct me if I'm wrong, but I'll start with a few assumptions:
- Your current 20k debt is unsecured - yes?
- You don't *need* to move right now - you just want to?
- You're looking to sell up your flat, move into rented for a year while you save for a deposit?
- You say "increase our deposit" - so does that mean that you currently have something saved towards this, or are you just taking the equity in the flat into account?

The debt you currently have - how was this accrued? That's a vital question in my view.

Do you currently have a budget and are you sticking to it? what surplus are you meant to have each month and do you have that? And the big question - how much are you reducing the debt by each month currently?

My suggestion would be to get yourself an up to date accurate SOA (Statement of Affairs) - you'll find the link for it at the top of the board on the "sticky" post there - and post it in here, we can take a look and see if there is anywhere that you can make savings that you might have missed - we can also see if you're tackling the debts in the right way currently.

The reason for my assumptions at the top - generally speaking turning unsecured debt into secured is a bad idea - people do this in several ways, by adding to a mortgage or as you're considering, by selling up and using hard-earned equity to clear debts. Down the line, that is 20k of equity that you don't have, and will need to borrow on a mortgage, meaning more borrowing and interest being paid over a longer period. As things stand, if you stay put for now and tackle the debt head on - your flat continues to gain value (assuming the property market continues the upward trend and there's no reason to assume that it won't) and yes, so will the sort of house you're looking to buy - but if you sell up now, there will be a gap between the sale price of your flat now - and the increase in the value of what you'll be buying in a year/18 months.

Honest advice - stay put, hit the debt head on with everything you can - and put off the move until you can afford it. Use that time to get your budget sorted and that has the added advantage that when you DO move, debt free, you'll be in a better place to afford the increased bills that will come with a bigger house.

dionysia

What's the £20k debt from? Are you on top of it, or any missed/late payments etc? How much would you pay in rent in the meantime compared to what you're paying on the mortgage now - could you keep paying the mortgage and throw additional money at the debt where you are? Have you taken into account the costs of getting a rental property and moving house twice in a few months?

Basically I'd think it would come down to what shows up on your credit records at the point you apply for a mortgage, and 6-12 months is a relatively short time to get everything straight after paying off the debt, changing address, and re-establishing savings.