Selling house to pay debt off and rebuy

[Deleted User]

So just had our home valued 160k which gives us 60k equity we currently have 25k debt we wish to pay off with this and then buy another house with remaining cash for a deposit. 

We both earn well and in full time employment for me and part time employment for my partner - I have poor credit my partner has fair
we own another house which we plan to move into for up to a year with lower mortgage and bills - our plan is to pay debt off which will leave us 1,500 extra a month So will be able to save 10k + throughout the year - and significantly lower our outgoings and hopefully improve our credit scores to get a better mortgage 
my question is: will our credit scores improve enough to take another mortgage out (I’m scared to come off the ladder although we own another house which we don’t want to live in long term but is a good rental so don’t want to sell - saving that for retirement) we will have 45k for a deposit for say a 220k house 
this would give us a clean slate and massively improve our lives financially if all went to plan 
reason for doing this now is we always wanted to move for better schools and with the whole COVID crisis do you think house prices are going to plummet - and then we would be left with only enough to clear debt or deposit which would make mortgages harder to get
thanks for any advice given 

sourcrates

It’s anyone’s guess what the housing market will do.
If you do go ahead, remember, this is a one shot deal, clear your debt, do not run up those lines of credit again, as many tend to do.
Make it your mission to live within your means, then it will be worth it to be debt free.

enthusiasticsaver

Even with no stamp duty at the moment moving house is expensive so make sure you are doing this for the right reason.  Selling your house is a big step and a year may not be long enough to repair poor credit history.  If you are selling just to pay off debt you need to make sure you will not build up debt again. 

BabyStepper

I understand your logic here, but I think it's risky for you. You have poor credit, it sounds like you haven't been managing your debt very well and have taken on quite a lot of it? It takes a long time to learn to live within your means and budget well. I'd suggest you do that first and try to get the debt down without selling. With £1,500 disposable income every month, in one year you'd have made significant progress. Then review. 

I wouldn't worry about the housing market - if your home loses value then the place you hope to buy will have lost value too, it's all swings and roundabouts. Good luck. 

[Deleted User]

wefwef said:

So just had our home valued 160k which gives us 60k equity we currently have 25k debt we wish to pay off with this and then buy another house with remaining cash for a deposit. 

We both earn well and in full time employment for me and part time employment for my partner - I have poor credit my partner has fair
we own another house which we plan to move into for up to a year with lower mortgage and bills - our plan is to pay debt off which will leave us 1,500 extra a month So will be able to save 10k + throughout the year - and significantly lower our outgoings and hopefully improve our credit scores to get a better mortgage 
my question is: will our credit scores improve enough to take another mortgage out (I’m scared to come off the ladder although we own another house which we don’t want to live in long term but is a good rental so don’t want to sell - saving that for retirement) we will have 45k for a deposit for say a 220k house 
this would give us a clean slate and massively improve our lives financially if all went to plan 
reason for doing this now is we always wanted to move for better schools and with the whole COVID crisis do you think house prices are going to plummet - and then we would be left with only enough to clear debt or deposit which would make mortgages harder to get
thanks for any advice given 

Forget about credit scores, it's your credit history that's important and without knowing how bad your credit history is no one can say whether a year would be enough for you to be considered for a mortgage.  No one has a crystal ball for house prices either.

Does the rental property have a BTL mortgage and if so do the T&C of the mortgage permit you to reside in the property yourselves?  Does the rental property at least wipe its own face as an investment property?  What kind of yield are making from it?  Are there tenants living in the property just now and if so how do you intend to get them to leave?  Have they served notice or will you need to serve a Section 21 notice?

How did you end up with £25k of debt in the first place and other than using equity to pay it off how will you ensure that the same cycle of debt does not continue.

[Deleted User]

Excellent post 🙂
Each one of those questions is a large point, the OP makes no mention of them and could well blow the idea out of the water before it gets any further 🤔

monetxchange

£25k debt is not insurmountable to clear, no way at selling up stage. It sounds like you have good incomes and investments outside the house, so why have you ran up debt? Not a criticism: it's just important to address why to stop it happening all over again.

I cleared a lot more debt than that in just under a year by tightening my belt massively and really focusing on clearing the debt. The process gave me the tools to manage my money better - something I wouldn't have if I just took an "easy" option out. I'd encourage you to look at doing it this way with all the help and resources on here.

I also think moving would involve big expenses and you wouldn't end up with as much for the debt as you think. I'm currently trying to get a mortgage and lenders are extremely reluctant to take on any risk at the moment and are nitpicking the tiniest things (ie if you took government help during lockdown for example). If I'm struggling with a large deposit, excellent credit file and a high enough income I can't see it'll be an easy ride for you. I rented for years and if you end up back in that position you'll struggle to get on the ladder again for a very long time as you just waste so much money.

Definitely utilise all the help you have on this forum to get this sorted!

TheAble

Impossible to say what house prices will do but one thing's for sure and that this is a risky time to be trying to get a mortgage, notwithstanding your poor credit. My recommendation would be to stay where you are for now, reduce your expenses and so on and pay off the debt the hard way. A benefit of this is that your new found budgeting skills will stay with you for life.