Pay debt off or use car sale cash as house deposit?

GolfR

Hi all, so my car is for sale at the moment, looking to get around £14k for it roughly. I have a lot of debt which is what I originally planned to pay off around half of once I sold the car however recently I’ve been wondering whether to use the 14k as a house deposit. It’ll be a single person mortgage and houses are cheap where I am so that’ll be around a 15% deposit. Problem is, I’ll still be saddled with around 30k of debt. I’m not struggling to pay my monthly debt payments at all and a mortgage would be approx £350 a month as opposed to the £500 pm rent I’m paying at the moment.

So my question is, what should I do for the best? Pay some debts off, pay the rest off in approx 2 years time and then start saving for at least a 10% deposit or shall I use the money for a deposit now? I’ve been given an agreement in principle by Barclays for 71k on an 85k house with my debts declared so I don’t think getting the mortgage would be too difficult. I’m 33 so I’m aware that time is running out - I know I’m not old but mortgages aren’t exactly short term and goodness knows how long it would take me to save for a deposit once my debt is paid off and I like the idea of being 4 years into a 71k mortgage rather than starting off fresh in 4 years time and having paid 4 years rent.

Thank you to anyone who took their time to read this.

CHRIS---

It seems you'd be better off getting the mortgage. Your outlay will be less each month compared to the rent so use the difference to accelerate the repayment of the debt.
The one think I would say is try to get out of whatever habits have got you into debt in the first place or you'll be in a worse position in the future.

JayRitchie

GolfR wrote: »

Hi all, so my car is for sale at the moment, looking to get around £14k for it roughly. I have a lot of debt which is what I originally planned to pay off around half of once I sold the car however recently I’ve been wondering whether to use the 14k as a house deposit. It’ll be a single person mortgage and houses are cheap where I am so that’ll be around a 15% deposit. Problem is, I’ll still be saddled with around 30k of debt. I’m not struggling to pay my monthly debt payments at all and a mortgage would be approx £350 a month as opposed to the £500 pm rent I’m paying at the moment.

So my question is, what should I do for the best? Pay some debts off, pay the rest off in approx 2 years time and then start saving for at least a 10% deposit or shall I use the money for a deposit now? I’ve been given an agreement in principle by Barclays for 71k on an 85k house with my debts declared so I don’t think getting the mortgage would be too difficult. I’m 33 so I’m aware that time is running out - I know I’m not old but mortgages aren’t exactly short term and goodness knows how long it would take me to save for a deposit once my debt is paid off and I like the idea of being 4 years into a 71k mortgage rather than starting off fresh in 4 years time and having paid 4 years rent.

Thank you to anyone who took their time to read this.

Could you post an SOA? I could see an argument for either option but difficult to say more without seeing income and expenditure plus details of the debt (interest rate and end dates on any interest free deals).

Unicorn_cottage

If you got a Lifetime ISA today then put in £4k from the car sale before the end of March. Then pop in another £4k in April you will get £2k from the government which you can use to buy a house. The only thing is you would need to wait a year to you can use the LISA but you will have made £2k towards your house. I would then work really hard and pay off as much as you can off your debts.

I would then put the £6k towards the debts paying off the those with the highest APR. What debts do you have with APRs?

ceb1995

don't use all the money for a deposit, keep some back as cash so that if anything ends up needing doing immediately in the house you won't make your debt situation worse and you might need 1k just for conveyancing ( do check though, it was a couple of years ago but we got our legal fees covered by our bank and didn't have a product fee) .
Some of the extra you'll have left from a mortgage will go on insurance and general maintenance but you should still be better off overall to tackle more of those debts.

Willing2Learn

JayRitchie wrote: »

Could you post an SOA? I could see an argument for either option but difficult to say more without seeing income and expenditure plus details of the debt (interest rate and end dates on any interest free deals).

^^^ This ^^^

And here is the online form for you to complete for your SOA (Statement of Affairs)
https://www.lemonfool.co.uk/financecalculators/soa.php

DrEskimo

ceb1995 wrote: »

don't use all the money for a deposit, keep some back as cash so that if anything ends up needing doing immediately in the house you won't make your debt situation worse and you might need 1k just for conveyancing ( do check though, it was a couple of years ago but we got our legal fees covered by our bank and didn't have a product fee) .
Some of the extra you'll have left from a mortgage will go on insurance and general maintenance but you should still be better off overall to tackle more of those debts.

Yea this would be my immediate concern. OP, do you have other savings as well as the proceeds from the car sale?

If not, you might risk incurring more debt, as buying a house will come with many other costs beyond the deposit....

I agree with your assessment in terms of not paying rent and getting on the housing ladder, but you don't want to be in a position where you are accruing more and more debt due to unforeseen costs with the new house.

An SoA would be a very good idea.

MidsHollie

From a psychological perspective, I would pay the debt off then save for a house. Having fairly recently bought my home, the whole process was far more expensive than I anticipated. If I had my time again I would save up over and above what I needed for the deposit, so that every house related purchase wasn't then funded by debt. This would in theory make you slightly worse off financially based on the rent to mortgage difference, but psychologically would leave you in a much better place. Could you find somewhere that's cheaper to rent before you buy? Often people make sacrifices when choosing where to buy, but not when they rent (commute distance, location, type of house etc)

GolfR

Hi, sorry for the delayed reply I have been in work on nights a lot over the last week. To answer your questions:

No I do not have any savings unfortunately. I left my partner and moved into this house just over a year ago so there has been some paying out I didn’t foresee but mainly it’s been overspending on my part from my typical ways however that stops now, I’ve not bought anything apart from the essentials (food and diesel) in the last fortnight so I hope I’m on the right path now finally.

It’s unlikely I’ll be able to move as I have to stay near my kids school and my ex in laws who still look after my kids (their grandkids) when I work. i can’t have normal childcare as I’m a mainly night shift nurse. The houses to rent around here are quite scarce and houses that I have seen aren’t much cheaper and are shitholes. Excuse my french but I couldn’t think of a better word to describe!

So I sold my car a few days ago to a car supermarket place and got £13,700. Still waiting on the money but at least I know it’s on its way. Here is my SOA with the car money being classed as cash assets. I’ve not done one of these before so I hope it comes out ok.

Statement of Affairs and Personal Balance Sheet

Household Information
Number of adults in household........... 1
Number of children in household......... 2
Number of cars owned.................... 1

Monthly Income Details
Monthly income after tax................ 1750 (changes monthly depending on shifts worked but it’s around this usually)
Partners monthly income after tax....... 0
Benefits................................ 500 (again, changes monthly but this is approx)
Other income............................ 200
Total monthly income.................... 2450

Monthly Expense Details
Mortgage................................ 0
Secured/HP loan repayments.............. 0
Rent.................................... 500
Management charge (leasehold property).. 0
Council tax............................. 130
Electricity............................. 35
Gas..................................... 30
Oil..................................... 0
Water rates............................. 43
Telephone (land line)................... 0
Mobile phone............................ 23
TV Licence.............................. 13
Satellite/Cable TV...................... 54 (sky, line rental and broadband all in here)
Internet Services....................... 0
Groceries etc. ......................... 200
Clothing................................ 25
Petrol/diesel........................... 120
Road tax................................ 3 (£30 pa)
Car Insurance........................... 42
Car maintenance (including MOT)......... 30
Car parking............................. 0
Other travel............................ 0
Childcare/nursery....................... 0
Other child related expenses............ 20
Medical (prescriptions, dentist etc).... 8
Pet insurance/vet bills................. 0
Buildings insurance..................... 0
Contents insurance...................... 5
Life assurance ......................... 0
Other insurance......................... 0
Presents (birthday, christmas etc)...... 60
Haircuts................................ 0
Entertainment........................... 0
Holiday................................. 50
Emergency fund.......................... 0
Total monthly expenses.................. 1391


Assets
Cash.................................... 13700
House value (Gross)..................... 0
Shares and bonds........................ 0
Car(s).................................. 2800
Other assets............................ 0
Total Assets............................ 16500

No Secured nor Hire Purchase Debts

Unsecured Debts
Description....................Debt......Monthly...APR
Car loan.......................13450.....362.......3.1
Loan...........................9200......250.......10.5
Credit card....................2980......35........12.9
Graduate overdraft.............1000......0.........0 (0% until august 2020)
Barclaycard ...................2500......55........0 (0% until sept 2020)
Phone..............400.......37..........0 (0% until ends in November 2020)
Bed...............450......50........0% for the term, ends November 2020
Sofa...............850.......18..........0% for the term, ends in 4 years
Total unsecured debts..........30430.....807.......-


Monthly Budget Summary
Total monthly income.................... 2,450
Expenses (including HP & secured debts). 1,391
Available for debt repayments........... 1,059
Monthly UNsecured debt repayments....... 807
Amount left after debt repayments....... 252

Personal Balance Sheet Summary
Total assets (things you own)........... 16,500
Total HP & Secured debt................. -0
Total Unsecured debt.................... -30,430
Net Assets.............................. -13,930

Created using the SOA calculator at Lemon Fool.
Reproduced on Moneysavingexpert with permission, using other browser.

MallyGirl

Apart from the high present allocation there really isn't much fat on there to trim.
My big concern would be the rise is cc repayments when those 0% deals run out. Does their Dad have the kids sometimes so you could get a 2nd job - bar work or something?

Andyjflet

Take a look at Dave Ramsey and his baby steps programme, this is how I would do it.

Keep £1000 emergency fund in a savings account with quick access

Use the car cash to clear the car loan.

Start paying down the other debts

Then start saving for a deposit on a home.