Anxious about getting back into debt. Can`t sleep, advice needed.

SnowDrop

Hi all,

Looking for advice regarding my financial situation please.

I recently paid off a huge amount of debt that I carried for nearly 10 years. At one point I believe this was around £25k, a mixture of loans and credit cards. It was a long, painful journey. I was never a high earner (made around £25k up until recently) and was made redundant twice since 2020 due to working in industry shattered by the pandemic.

I now have a stable job and income. My pay is around £38-40k. It varies due to shift allowance but wouldn`t go below.
Since paying off debt I have managed to save £6000 in six months. This has been extremely hard but I have so much anxiety about money I wanted to have 3 months` expenses saved in the bank. I have no other savings or investments, nothing saved up for medical or family emergencies, just 3 months` worth of expenses.

My issue is that I have two huge expenses coming up, and I am thinking so much I can barely sleep.

The first one is leasehold extension. I pay mortgage on a property that has 87-88 years left on lease which means I have to extend urgently.

The other one is my car. I am currently driving a 13-year old car that required a lot of work done in the past 2-3 years. It is worth £900 max. I am looking at spending £400 before the end of this year on the car (must be done in order to pass MOT).

Obviously, I haven`t got the cash to pay upfront for any of these expenses (Leasehold extension & new car).

The trouble is, I managed to secure a low-interest mortgage rate for 5 years at the beginning of 2022 (2.19%). When I have to renew in about 3 years, I will most likely have to pay a few hundred on top of what I pay now, with service charge, ground rent etc likely to increase as well.

So I have been thinking about getting a loan. I could buy a basic, non-flashy car with low mileage, as well as extend my leasehold in one go. My plan is to pay back the loan in 3-4 years, before the time comes to renew the mortgage.

Would this be a good idea? I absolutely hated being in debt. But I don`t really see another way to handle this. 

Sorry for the long post. Any advice is much appreciated.

stu12345_2

your leasehold extension will probably cost £8000 including legal fees, this can be added to an existing mortgage.

you need to extend before say 80 years, max left cos price jumps up.

£400 is nothing to be spent on an average car.

I would keep car, get it repaired, then contact a mortgage broker regarding lease extension 

tacpot12

It's not a good way to handle it. People that take out consolidation loans tend to end back up in debt. 

You have done really well to save £6,000 as an emergency fund, but it doesn't make sense to have an emergency fund and then borrow money. 

A 13-year old car might be at the end of it's life, but it might not be. Spending £400 now might preserve the car for another four years or more. (I drive a 17 year old car that I bought at 13 years old for £900.) I would recommend having a trusted mechanic look over the car and its service history and give you an idea of its likely lifespan. (If they say it is going to last, spend the £400 from your saving and start saving to replace the car and the money from your savings to restore you to £6000. 

You are right that it is fairly urgent that you extend the lease on your property, but I doubt this will eat up all your savings. Have you done the sums to find out how much the lease extension might cost? (I extended a lease on flat a couple of yers ago, the cost was about £1200 + fees, but I was extending from 107 years, so yours will certainly be more, but it might not be more than the savings you have). 

You need to avoid borrowing at all costs, and if you do borrow, borrow the least you need to. 




   

SnowDrop

stu12345_2 said:

your leasehold extension will probably cost £8000 including legal fees, this can be added to an existing mortgage.

you need to extend before say 80 years, max left cos price jumps up.

£400 is nothing to be spent on an average car.

I would keep car, get it repaired, then contact a mortgage broker regarding lease extension 

Thank you, that`s good advice. I was not aware leasehold extension can be added to mortgage,

2021rdsunshine

Hi. I wouldn’t get a loan if I was you. Please take my advice with a pinch of salt, I’m in debt and there is nothing that I would like more than being debt free and having £6000 saved. 

You seem to be really good at saving, you managed to save that amount of money in 6 months so there is potential there to increase that in order to allow you to pay for a run around second hand car. Of course I have no idea how much would be to extend the lease on your property but take time to think how urgent it is to do that. As you say you expect to have your mortgage and related expenses increased in 3 years time, the last thing you want is having a loan increasing your monthly outgoings. 

stu12345_2

the way I see it is the bank owns flat  and it's their asset to protect, they obviously want it to have max market value

if one day you lost you job , burned through your savings and heaven forbid they repossessed it.

I'm sure a bank would be keen especially your own mortgage bank to extend  lease as long as you can afford payments and have enough equity.

once you have extended lease, the flat is probably worth £30000 more to you and the bank

ps my car is 18 years old and still going strong, £400 to £500 I budget for repairs and servicing and mot

SnowDrop

tacpot12 said:

It's not a good way to handle it. People that take out consolidation loans tend to end back up in debt. 

You have done really well to save £6,000 as an emergency fund, but it doesn't make sense to have an emergency fund and then borrow money. 

A 13-year old car might be at the end of it's life, but it might not be. Spending £400 now might preserve the car for another four years or more. (I drive a 17 year old car that I bought at 13 years old for £900.) I would recommend having a trusted mechanic look over the car and its service history and give you an idea of its likely lifespan. (If they say it is going to last, spend the £400 from your saving and start saving to replace the car and the money from your savings to restore you to £6000. 

You are right that it is fairly urgnet that you extend the lease on your property, but I doubt this will eat up all your savings. Have you done the sums to find out how much the lease extension might cost? (I extended a lease on flat a couple of yers ago, the cost was about £1200 + fees, but I was extending from 107 years, so yours will certainly be more, but it might not be more than the savings you have). 

You need to avoid borrowing at all costs, and if you do borrow, borrow the least you need to. 




   

Thank you very much for sharing your thoughts, very helpful.

stu12345_2

post your leasehold extension question in the mortgage forum, think there is one

RAS

You are wise to plan for the car replacement and lease extension, but given how much you've saved in the last few months, you can easily save up enough sort out both of them.

But when you've lived with years financial uncertainty, getting your head round the different choices you now can make can be a headache until you get used to it. It takes time to feel secure, even when you are more secure.

The lease needs sorting in the next 5 years, preferably. But the car may be more urgent. Follow tacpot's advice and even if you can get the car through the MOT, start saving for something about 2-3 times the current value, or more if you prefer. You don't need to spend that until you know the car needs replacing shortly, unless you find what you want and can sell on your existing one.

Once you have enough for an emergency car replacement, start thinking about the lease, splitting your monthly savings between the two projects. You could add it to the mortgage but it may be wise to have the legal fees available up front. There is advice on lease extension on the Buying, Renting and selling subforum. 

I'd also suggest you think longer term about income protection and pensions, depending what your employer offers? If they cover a period on full pay, then half pay, how far would your current saving go if you were injured? Presumably you will soon have some redundancy cover as well?

I'd add it's probably also time you had a dedicated holiday/treats fund or pot alongside your savings. Yeh, I know it's mind-bending to think of wasting money on non-essentials but you are entitled have some fun and your will extend your working life if you decompress sometimes.

SnowDrop

2021rdsunshine said:

Hi. I wouldn’t get a loan if I was you. Please take my advice with a pinch of salt, I’m in debt and there is nothing that I would like more than being debt free and having £6000 saved. 

You seem to be really good at saving, you managed to save that amount of money in 6 months so there is potential there to increase that in order to allow you to pay for a run around second hand car. Of course I have no idea how much would be to extend the lease on your property but take time to think how urgent it is to do that. As you say you expect to have your mortgage and related expenses increased in 3 years time, the last thing you want is having a loan increasing your monthly outgoings. 

Thanks for your comment. You are right, a loan could affect the mortgage rate in 3 years` time if for whatever reason I can`t pay it back. Hmm, I haven`t really thought of that to be honest.

SnowDrop

stu12345_2 said:

the way I see it is the bank owns flat  and it's their asset to protect, they obviously want it to have max market value

if one day you lost you job , burned through your savings and heaven forbid they repossessed it.

I'm sure a bank would be keen especially your own mortgage bank to extend  lease as long as you can afford payments and have enough equity.

once you have extended lease, the flat is probably worth £30000 more to you and the bank

ps my car is 18 years old and still going strong, £400 to £500 I budget for repairs and servicing and mot

I will definitely look into this option.