Clearing loan debt

JamesBro

Hi all.
I'm on a mission to clear my loan debts and wondered what the best strategy is.
Current situation:

- Bought a London house in 2017 for £310k.
- Going to list it soon. Now valued at £350k.
- Mortgage is at £275k with 25 years left.
- Moving out of London and need to upsize (in size but not cost). Will be looking to buy at around the £325k-£350 mark.
- I have taken out three loans with my partner:
- One was at £18k. Now at £10k. Comes to an end in 2024.
- Another was when I remortgaged and is a loan with a mortgage so comes to an end in 25 years. £15k remaining on it.
- Another was taken out recently for £3k, so £3k left with four years to pay off.
- Total monthly cost is £400 a month.
- Both also in our overdrafts of £3.5k between us. 

However, as mentioned, we are selling soon. All the loans were for home improvements and I hope they will pay off, given we are set to make £40k on the value we bought it for. So is it realistic to think I can sell for £350k, pay off the estate agents and legal costs (approx. £8k?), pay off the mortgage (£275k) and the mortgage loan (£15k) and be left with approximately £53,000? If so, can I then look to pay off the £3k loan (no early repayment charge), to leave me with £50,000. And then I'd like to clear the overdrafts to leave us with, let's say £45,000 with extra costs I may not have factored in (early repayments etc). Then I'll be free of my overdraft and two loans, leaving me with just one, which is due to expire in four years' time.

I should also say that I am not necessarily able to move my mortgage to something else immediately and may have to rent for a year given the demand for property in the area I need to move for for work. Is that sensible, or not, from a mortgage application/rate point of view for the future?

Is this at all realistic or am I missing something obvious?
Thanks
James.

Grumpy_chap

You are going to sell current house for £350k and use the proceeds to clear debts.
You seem to have missed buying the next house for £350k.

JamesBro

No, I will have another mortgage and hopefully a deposit of £40k-£50k. I just want to clear my loans but not my mortgage. I appreciate a mortgage is another loan.

enthusiasticsaver

You are assuming you will get the full asking price which in todays market may not be realistic.  You seem to be heavily committed debt wise but not necessarily added value to the property as you have taken debt out for £36k for home improvements but property only worth £40k more than you paid for it and you have also had to pay interest on the loans so it will have cost you more than £36k. You have had the benefit of it though over the 3 years you have lived there but beware of that with future homes. 

JamesBro

Yes, thank you enthusiasticsaver. Aware of all of that, having spent the money we have on the house, that it will only give us a small return on the profit. However, I am going to the pessimistic end of what it would sell for. Many similar houses in the area are going at a higher price than this, so I'm trying to be realistic. 
I'm just looking for what I may be missing in terms of what I'll get when I sell the property to be able to pay off two of my loans and think I can clear myself of some of that. 
I believe I can clear the £15k I took with the re-mortgage (I assume I have to pay this off with the house sale anyway as it was part of the re-mortgage, right?). I believe I can pay off the recent £3k taken out. And I believe I can help clear my partner and my overdrafts of £3.5k. This is £21.5k plus the mortgage of £275k plus whatever I have to pay when selling and moving house (approx £8k?) so I reckon I'll have the sale of the house minus £304.5k left over (£45k - £55k). I hope that I'm correct in my assumptions. 

DrEskimo

You are just moving unsecured debt into secured debt on your home in an indirect way.

You are now going to have this debt in your mortgage and prolong it over years, accruing much more interest in the long term.

Far more important than that though, is have you addressed the causes for the debt? Why are you in your overdrafts and why do you have so many loans? If you don't address the spending problems you will simply accrue these up again and now have a larger mortgage when the mortgage should be decreasing (both due to payments and due to the house value increasing).

Work out where you spending it going, get a written budget, stick to it, overpay on your debts and then start actually accruing wealth, not eroding it.....

JamesBro

I'm really confused. Apologies.

How would I be putting the debt into my mortgage, when I'm just looking to pay off some of the debt with the money I raise from the sale of my home?

As said, the plan is to sell my home and get back approximately £75k in return and then use a chunk of that to pay off two loans and my overdraft. 

Then I'm looking at possibly renting for a year before re-evaluating where I am financially and whether I want to go into getting a new mortgage on a property. 

foxy-stoat

+ £350,000 - sale price
-  £275,000 - mortgage
- £  10,000 - secured loan
- £  15,000 - unsecured loan
- £    3,000 - unsecured loan
- £    3,500 - overdraft
- £    6,300 - Estate Agent fees (assumed 1.5% plus VAT)
- £    1,500 - legal costs
------------------------------------
£35,700 cash left over to use for the next mortgage, less legal fees and SDLT if applicable.

If you the only had a mortgage of £275,000 to clear then you would have £67,200 to go towards your next mortgage, so you will require a larger mortgage as you will have to clear all your debts before buying the next property.

JamesBro

Thank you foxy-stoat, this is helpful and laid out better than I did, so thanks.

A few things:

- The £15,000 is the secured loan and the £10,000 is unsecured. Does that make a difference? Probably not.
- The estate agent we'll probably use is going for 1% plus VAT, which maybe helps a little. (On a side note - I could obviously save a lot using an online agent, is this generally recommended on MSE?)
- As said earlier, I do genuinely believe it'll sell for more - probably £355k-£360k. I'm pessimistic usually but given a house just sold for £350k on my road and is in worse condition/less space, I am hopeful. 

And, please, some advice here. I hadn't factored in paying off the final loan (the £10,000) and was going to see it through to the final payment in July 2024. The reason being is that I'd have wanted more from a deposit point of view. However, would you suggest Option A (no debt, smaller deposit) is better than Option B (1 outstanding loan, bigger deposit)? If so, then yeah, it would be £35k-£40k to put in the bank then, right? Is there an Option C here - maybe halving that loan to have a smaller outstanding debt but still a little more in the way of a deposit for the future? Also looking at a lower-cost rent to save a few hundred a month for a year. 

Thanks for your help.

foxy-stoat

Depends on your numbers, if they are tight then the lender will want no debt.  Speak to a broker for your options.

I didnt factor in early repayment charges so that would be another figure that needs to be in there.

Option C could be keep all the unsecured debt as is and, if not already, get it all on zero or low percentage apr and overpay as much as you can until you need a mortgage.   Being 3.5K overdrawn every month isn't good though, so maybe clear that at least.

JamesBro

All makes sense. Thank you. This is what I was searching for.
Now wondering how I get onto a zero/low percentage APR and overpay. 
And yes - overdraft clearing is the priority! Thanks.