Selling house to pay debt

BA1985

Hi Everyone,
First post, and after some advice. The title says it all really, it has got to the stage of debt where the only viable option we have to repay the debt is to sell the house.
Fortunately, we have a fair bit of equity in the property. Figures as follows:
Debt: 45k
House Value: 330k
Mortgage + Debt repayment +: 271k
Solicitors costs for selling: 5k
Total deduction: 276k
Remaining: 54k

So, the house is sold, we are debt free, but we need somewhere to live. So the plan goes as follows:
We rent a house for a year, whilst trying to top up the 54k pot. After a year, i would assume our credit ratings would have approved to the point where a mortgage lender would be willing to lend to us, and we then proceed and re-enter the market for a house purchase.

Sounds great on paper, but i know it is full of risks, mainly, that we will get stuck in renting and never be able to get back on the ladder.

So advice please, would you do it if needs must? our debt is mainly credit cards, and we have reached the point with them where we are unable to meet minimum payments, default notices are flowing through the door, and i am unable to obtain any more lending to keep them at bay. Credit rating is terrible due to missed payments. Even though i have been trying to pay at least something to the lenders each month, they still record it as a missed payment as its not the minimum they have requested. For example one lender asking for a minimum payment this month of £732!

Any advice welcome, the house i feel is our only option at present to get out of this hole we have got ourselves in.

Thanks

fatrab

Hi and welcome to the forum.


I'm sure folk will be along soon who are more knowledgeable regarding Debt Management Plans etc but for now I'd recommend you complete an S.O.A:


http://www.stoozing.com/calculator/soa.php


Format it for MSE then copy and paste it in this thread. This will give everyone a clearer picture of where you stand.


Best of luck on your journey, whichever path it takes

enjoyyourshoes

I don't really understand?

You have sold your house with net equity of £54K

Your debts are £45K

Your plan (title) was to pay debt with equity? Have you not done that?

First thing is to work out why you were in debt and solve this problems.

The live within your means and start saving utilising RS (HSBC & FD) to name two.

stop the drip drip drip spending and get both of you on the same page to saving for the future

NaughtySpot

Welcome to the forum.

The above poster is correct, do that first and see what improvements can be made on your budget first. If you are spending wildly and don't tackle this you'll end up back where you started with no house to call your own.

I'd also advise calling a debt helpline. I would recommend Stepchange, as they have been really helpful with us, but there are others available. DO NOT enter into an IVA with all that equity, and do not pay for debt advice.

NaughtySpot

enjoyyourshoes wrote: »

I don't really understand?

You have sold your house with net equity of £54K

Your debts are £45K

Your plan (title) was to pay debt with equity? Have you not done that?

First thing is to work out why you were in debt and solve this problems.

The live within your means and start saving utilising RS (HSBC & FD) to name two.

stop the drip drip drip spending and get both of you on the same page to saving for the future

My understanding is the OP hasn't sold his house yet, but is starting to feel like it would be a viable option...

fatrab

enjoyyourshoes wrote: »

I don't really understand?

You have sold your house with net equity of £54K

Your debts are £45K

Your plan (title) was to pay debt with equity? Have you not done that?

First thing is to work out why you were in debt and solve this problems.

The live within your means and start saving utilising RS (HSBC & FD) to name two.

stop the drip drip drip spending and get both of you on the same page to saving for the future

There will be £54k left after the debt and mortgage are paid off if I'm reading things correctly, if he sells the house

Ilona

Confusing. Sold house, have 54k equity. Debts 45k, leaving 9k spare cash, so debt free.

Selling house, expect to have 54k equity, still got debts of 45K. Not sure whether to get rid of them and pay them off. Will pay rent for a year and save up for deposit for new house while still paying off debts. So, not really debt free.

Ilona

BA1985

Apologies if i didnt make it clear.

I have not sold the house yet, but this is looking to be the last option to clear our debt.

If i were to sell, i would pay back the mortgage + pay off our 45k debt, which would leave us with 54k equity, which i would stash away, and try and add to, in order to build up another deposit to buy a house after a years renting.

BA1985

Thank you FatRab - will give this a go, to see if its still viable to cut spending and repay debts without the need to sell the house.

enthusiasticsaver

I understand the post in that if the property sells at £330k and no guarantee it will then the debt and mortgage will be repaid and after costs the OP will be left with £54k but a trashed credit record and the prospect of renting which will deplete capital as that is usually more expensive than a mortgage.

My advice is do not do it. Defaults on your credit record mean you will find it difficult to get another mortgage. Renting is usually more expensive than a mortgage and you will need to raise probably 6 months to a year rent up front as you have a bad credit record. Even if you repay your debt with the sale proceeds then the recent defaults do not automatically drop off your credit record. How are you going to pay the deposit and costs up front for renting as you will not get sale proceeds until after completion if your budget is that tight?

I would suggest a DMP is your best bet if you can no longer meet minimum payments and contact stepchange as a matter of urgency. Selling your home to pay off unsecured debt is madness. Post an soa here as a first start and contact your creditors asking them to freeze interest as you can no longer meet the minimums. Are you unable to meet minimums because you are still overspending or are your debt repayments taking up too much of your income?

Prioritise mortgage and any secured loans. Utilities and food and council tax and (HMRC if applicable). All unsecured loans including credit cards go to the bottom of the pile. Save an emergency fund and cut up credit cards. Open a basic bank account with no overdraft (unless your current bank does not have an overdraft).

BA1985

Thank you for the advice.
At present, we dont have any registered defaults. But it is getting to the point where the lenders are threatening this.
You would be correct in stating we wouldn't have any funds until completion & would have to stump up a large deposit due to a bad credit score (no defaults & all debt repaid upon completion - but a number of missed payments).
I understand, and agree, selling the house for unsecured debt isn't the best way forward, but the idea only seems an option as it would be a fresh start, no debt, and no stress.
I will contact StepChange and complete the SOA.

Thank you