Re arrange finances or move to smaller house?

Beatle_Ray

Hello, need some guidance please, the background is that I'm self employed and that my business has suffered badly during the Covid pandemic, the business model is fine but because of the nature that prevents events happening it has suffered, there is some turn over and income but not enough to sustain us short term, our current home is worth £400K and we owe £105K on it, its on a repayment mortgage with 11 years to go and costs just under a £1K a month on the mortgage, i had a chat with a broker yesterday who said that its possible we could go to interest free the other option is to sell and move to a smaller house, this is three bedrooms and we only need two, the smaller house would mean that potentially we would only owe about £20K which is manageable, the worry about finding the payments each month has been draining since March, we are going to look at another property tonight, I'm really not sure what to do and do not want to make a decision that i would later regret, thankfully we dont have any other debt save for a couple hundred quid on an overdraft but that can re solved, my fear is that if i sell this now then the equity i have in the house is then gone but if I sit here and do nothing then come Feb 2021 I will be in trouble and potentially unable to make the payments, what is the advice, all comments welcome and thanks in advance.

xylophone

What arrangement might your current mortgagee be prepared to offer under the current circumstances? Have you asked?

How do you feel about downsizing?

getmore4less

you don't lose the equity in the property just the moving costs.which are not that cheap.

Ask your current lender if they will let you go interest only.

Would lodger(s) help with the shortfall.

can't be full time any more what about a second job to try and fill the gap.

recruitment for seasonal jobs has started 

Atlas234

I would try switching to interest only if possible or maybe even remortgaging over a longer term to reduce the monthly payments depending on fees etc

numbercruncher8

Start planning - there can be a significant gap between selling the house and the cash hitting your account - it could be over 6 months if your buyer comes into problems.

Talking to the lender maybe a start, going to interest only would definitely buy some breathing space.

Equity doesn't disappear, it just changes forms. So if you downsized you may have less equity in the property, but then you would have more cash.

Racky_Roo

As recommended, I'd look into getting a lodger (or maybe 2 if possible). Depending on where you live, people are often looking for Mon-Friday rooms so it feels less invasive.
Moving is expensive, so don't forget to factor in all the costs which will need to be paid and will eat into the equity

RAS

The broker may also be looking for income.

Definitely talk to your mortgage provider and think about a lodger short-term. 

Beatle_Ray

Thanks for the replies here, we went to look at a property tonight but it was far too small and all it did was increase my desire to stay where we are, just looking at the interest free option, i have never done this before so just a couple of questions, firstly how likely would it be given, I appreciate that is a tough question but if the current trend is not to do that then I will have to re think but before tonight i wasn't too keen to do that but the majority here seem to think so, also would it be odd to re-mortgage and take an extra cash on this and extend the life time of the mortgage, replies appreciated in advance,
Thanks

theoretica

How bad is your medium term projection for your finances?  You mention your current mortgage is £1000 - but not how much you feel you could pay.  If you could pay, say, £500 then a lodger or remortgaging over a longer term depending on your age seems a good option.  If you would have trouble paying your bills even if the mortgage were zero then I think you need to look at your whole life and finances in more detail and not just to the mortgage for a solution.

Beatle_Ray

thanks, I'm 58 just turned, the lodger at the moment is probably not ideal given the pandemic but the remortgaging seems the better option, the medium term is fine, I'm confident my income will increase again

Tiglet2

If you're confident that your income will increase again, I don't think you should consider moving at all, but stay in your current home on an interest only mortgage.  Some people have interest only mortgages for years, but obviously it will mean that the outstanding amount owed will not go down.  You could also consider remortgaging.  Most banks will lend to people up to the age of 70 or even a few years older than that which might reduce your monthly repayments.

If you downsize you should think of the additional costs of that - fees to the EA for selling the property £4000, removal costs £1000, conveyancing fees sale and purchase £1800, land registry fees £135, bank TT fees £50 plus other disbursements £100, searches £250, stamp duty on the purchase might be zero before March 2021, otherwise there may be stamp duty due depending on purchase price.