UC and Inheritance - Should I pay off debt or use for house deposit?

ElleWoods

I’m coming into some inheritance and I’m looking for advice on what to do with it, please. I want to give full details and not miss anything out, but I’ll try and keep this as brief as possible.

I migrated from legacy benefits to Universal Credit in September and received my first UC payment a week ago. I’m a single mum in my early 50s with an 18-year-old (not in education) who works part time. No other children. I work part time and earn just over £16k but I’m hoping to increase my hours in January, if more are available. I’m keen to increase my income so I’m also looking out for other jobs that pay more and/or offer more hours. I currently rent privately and receive the housing element of UC.

I currently have just over £11.5k in consumer debt across the following:

£5k bank loan at a rate of 4.9%, due to finish Nov 2026. Set monthly repayment of £184.
£3.4k on credit card at 0% until Feb 2025, then it will be 29%. I pay off £100 per month (just over min amount) as that’s all I can afford.
£950 Universal Credit advance at 0%, to be paid off over two years. Set monthly repayment of £42 taken directly from UC payment. I only swapped to UC in Sept, so this is the newest debt.
£2300 student loan at a rate of 8%. I don’t currently earn enough to have to make repayments.

Sadly, my dad recently died and I’m sorting out his estate. This consists of a current account and savings account, an ISA, and life assurance. He wasn’t a homeowner (he rented from the council), so there’s no house to sell. The money from his estate has just started to come in and yesterday I had just over £14k transferred from his current/savings accounts to my current account. I’m awaiting info on his ISA and life assurance, but from the paperwork I have I’m estimating the end total will be around £25k ish, potentially slightly more. From this, I need to pay the balance of the funeral, headstone etc, which I think will be around £3-3.5k. I only noticed the £14k in my account last night, so I haven’t yet reported this on my UC journal, but I’m going to do so shortly.

Obviously, my next UC payment is going to be negligible due to the £14k, then once my account goes over £16k I won’t receive anything from UC at all, and I’ll have to start using the inheritance for general living costs. I need to make some big decisions very quickly, and this is what I need help with please.

I’d love to buy a house but have never been able to save up a deposit, which the inheritance would provide. It’d also be lovely to have something to show for the money my dad has left me. At the same time, I have all this debt to pay off. So, my query is, do I use the money to pay off my debt, or use it as a deposit for a small mortgage? Or do I split it up and use some to pay off the credit card which is going to a 29% interest rate in Feb, and put the rest towards a deposit? For reference, I live up north where house prices aren’t as high as they are further south.  Ideally I’d also like to give my son a few thousand and/or set him up some investments, so he can start to grow his money.

I’m guessing I’d be better off paying off the debt, as I know debt goes against you when looking for a mortgage, plus being debt free would mean I wouldn’t have to spend £300 each month on debt repayments. However, I don’t want to write off buying a house altogether as I feel this could be my only chance to do so.

What would you suggest I do? Obviously once the money is gone, it’s gone, so I don’t want to make the wrong decision, and it all feels a bit overwhelming.

poppy12345

If you used it as a deposit for a house with a mortgage then it will not be disregarded while you look for a property. Therefore in the meantime with capital of more than £16,000 you'll need to live off that as well. Looking for a property to live isn't going to be done overnight, it could take many months and would you get a mortgage? 

Also when you own your own property you are responsible for all the repairs, are you going to be able to afford that going forward? When you rent the landlord is responsible. 

It's obviously your decision but if it was me then I'd pay off the debt for the CC, bank loan and the UC advance payment. Maybe leave to student loan. 

If you're left with capital of between £6,000 and £16,000 there's a £4.35/month deduction for every £250 or part thereof over £6,000. If you give money away then you'll still be treated as having that money. 

teaselMay

I'd pay off the credit card, bank loan and UC advance now. Then when everything is settled look at shared ownership houses and see whether you can afford to buy that way

Muttleythefrog

In my mind I'm thinking same as poppy... ultimately if you do intend to buy a property you're going to need to afford mortgage payments etc.. even legal fees initially... and buying a property will take months all considered... at least 2 realistically. And so with that in mind I'm not sure now is the time to jump into that.. I would be inclined to pay off the debts poppy highlights and leave the student loan.. you may still then be entitled to some UC if maths is right while avoiding nasty interest of future. Keep an eye on the property market... improve your income as seems likely to happen... and then possibly bite the bullet when the right property arises and you can get an in principle mortgage offer enabling you to proceed with making serious offers to buy. Giving money away not wise for deprivation and need reasons.... consider that when in a situation of greater financial freedom and not claiming means tested support.

Buying a property can be quite an involved, emotional and sometimes stressful affair... and you can't escape the human reality that you've recently faced loss... so my advice I think is in line with the idea that at this time you've got enough probably to think about and a property purchase can wait until you're likely to have clearer decks on the ship.

In general advice... also try to hold your savings where they get interest but can be rapidly accessed.... you can still get around 5% on the market instant access.... trading212 as example currently does ISA at 5.1% so no tax consideration for that.

theoretica

ElleWoods said:

Obviously once the money is gone, it’s gone...

Not entirely.  You are currently paying £325 or so a month towards your debts.  If you paid the debts off, would you and could you really save that much to refill your deposit savings?   Or would it get spent?

I think you might want to go and talk to a free mortgage broker.  Would £20k deposit, or whatever you best calculation of what is left and the mortgage you can get on your current income (and debt situation) combine to realistically get you a property straight away?

TELLIT01

Having the deposit for a house is only the first, very small, step.  Finding a lender who would provide an adequate mortgage when the only income is state benefits will be difficult.  Even if you get past that step, the running costs for a property you own also need to be considered.

The general advice on these forums to anybody on benefits and thinking of buying their own property is - don't.

Newcad

I'm with the others,

pay off the 3 debts that you are currently paying monthly and you are immediately £326 a month better off without it affecting your UC (except that the debt would no longer be deducted from UC but that's included in the £326).

If after paying those and the outstanding funeral expenses you still have above £6K left that would reduce UC as said above.

If you keep the debts and the savings then UC will stop, the debts will still need to be paid.
You will have the savings in the bank of course - but those will be diminishing rapidly on your rent and debt repayments until they are below £16k and you can claim UC again.

It's much better in your circumstances to get debt free first and reap the advantages of that before even considering buying a property.

born_again

theoretica said:

ElleWoods said:

Obviously once the money is gone, it’s gone...

Not entirely.  You are currently paying £325 or so a month towards your debts.  If you paid the debts off, would you and could you really save that much to refill your deposit savings?   Or would it get spent?

I think you might want to go and talk to a free mortgage broker.  Would £20k deposit, or whatever you best calculation of what is left and the mortgage you can get on your current income (and debt situation) combine to realistically get you a property straight away?

The only issue here is that OP debt would play a big part in any Mortgage offer, they may get. 
That £325 a month is a massive amount out of OP's affordability.

ElleWoods

poppy12345 said:

If you used it as a deposit for a house with a mortgage then it will not be disregarded while you look for a property. Therefore in the meantime with capital of more than £16,000 you'll need to live off that as well. Looking for a property to live isn't going to be done overnight, it could take many months and would you get a mortgage? 

Also when you own your own property you are responsible for all the repairs, are you going to be able to afford that going forward? When you rent the landlord is responsible. 

It's obviously your decision but if it was me then I'd pay off the debt for the CC, bank loan and the UC advance payment. Maybe leave to student loan. 

If you're left with capital of between £6,000 and £16,000 there's a £4.35/month deduction for every £250 or part thereof over £6,000. If you give money away then you'll still be treated as having that money. 

Thank you. Think I’ve decided to get rid of the debt, apart from the student loan, then start again from scratch with a clean slate. 

ElleWoods

teaselMay said:

I'd pay off the credit card, bank loan and UC advance now. Then when everything is settled look at shared ownership houses and see whether you can afford to buy that way

Thanks, I’m definitely going to pay off the debt first. I’m not keen on shared ownership as I’ll still be half renting, and that’s exactly what I’d like to get away from. I’ll take a view of it once I’ve paid off the debt. 

ElleWoods

Muttleythefrog said:

In my mind I'm thinking same as poppy... ultimately if you do intend to buy a property you're going to need to afford mortgage payments etc.. even legal fees initially... and buying a property will take months all considered... at least 2 realistically. And so with that in mind I'm not sure now is the time to jump into that.. I would be inclined to pay off the debts poppy highlights and leave the student loan.. you may still then be entitled to some UC if maths is right while avoiding nasty interest of future. Keep an eye on the property market... improve your income as seems likely to happen... and then possibly bite the bullet when the right property arises and you can get an in principle mortgage offer enabling you to proceed with making serious offers to buy. Giving money away not wise for deprivation and need reasons.... consider that when in a situation of greater financial freedom and not claiming means tested support.

Buying a property can be quite an involved, emotional and sometimes stressful affair... and you can't escape the human reality that you've recently faced loss... so my advice I think is in line with the idea that at this time you've got enough probably to think about and a property purchase can wait until you're likely to have clearer decks on the ship.

In general advice... also try to hold your savings where they get interest but can be rapidly accessed.... you can still get around 5% on the market instant access.... trading212 as example currently does ISA at 5.1% so no tax consideration for that.

Good points, thank you. Going to pay off the debt then take it from there.