Need some advice - SOA - Selling home to pay off debt?

Starman1986 · 21 April 2018 at 7:05PM

Hi

We're in a bit of a pickle and hoping someone can help!

Situation
Our monthly outgoings on mortgage and debts are very high. I live in my overdraft and can't escape. To make ends meet, we live with my partners parents and try to make money from airbnb'ing our house (haven't listed in SOA as sporadic) whilst it's on the market for sale. I've started a business in the last 18 months and we have a young baby!

The business services our outgoings at the moment but it's too much pressure and a constant battle to keep the wolves from the door, to the detriment of the business and my stress levels! We can't grow the business (e.g. hire) as it has to service our own personal debts! My fiance has yet to return to work, but she is partner in the business hence the salary. She will return part time in the Summer so more productivity at work but an added childcare cost to come. So far, I've maintained a decent credit rating (only missed one mortgage payment a year ago) and have been paying down our debts ok. The outgoings are catching up with the business though to need to ease the pressure if possible....

Our current plan...
... has been to sell the house, pay down our debts and lower our monthly outgoing. But, our house has been on the market since Feb and is yet to sell, was on at 285, dropped to 275 - had an offer at 265 but holding out to achieve 275. We bought for 270 in late 2016. This leaves us without a house but we'd rather be debt free and start again! Our mortgage rate means we pay roughly £10k out of £12k in interest over the year - terrible stat!

Ideas
House/mortgage
- Let the house; we'd achieve 1100 maybe and that could almost cover the mortgage (minus costs to let) but we'd need permission to let which we might not get from Natwest. Wonder whether this might be better than selling so that we build an asset over time?
- If we did sell the house, the money could be used to pay down all debts?
Loans
- Consolidate our other debt (£13500) with a loan to pay off the ex-employer plus credit card debt. I have a 999 score with experian and 588 with ClearScore so maybe I'd get it, MSE eligibility scores are 50% for M&S 2.8% APR or 90% with ratesetter at 6.9%. Both are better APRs over 5 years. Our other £30k loan has 3.5 years remaining. The ex-employer wants a final bubble payment of £8.5k in November so it would roll that into a new loan and remove that requirement. The monthly payments would go down from £650 (£500 ex-employer, £150 credit card, I'm overpaying on the latter) per month to worst case scenario £270 per month.

Any thoughts appreciated!!

SOA
Statement of Affairs and Personal Balance Sheet

Household Information
Number of adults in household........... 2
Number of children in household......... 1
Number of cars owned.................... 2

Monthly Income Details
Monthly income after tax................ 2750
Partners monthly income after tax....... 1750
Benefits................................ 0
Other income............................ 0
Total monthly income.................... 4500

Monthly Expense Details
Mortgage................................ 1063
Secured/HP loan repayments.............. 0
Rent.................................... 0
Management charge (leasehold property).. 0
Council tax............................. 150
Electricity............................. 100
Gas..................................... 100
Oil..................................... 0
Water rates............................. 50
Telephone (land line)................... 0
Mobile phone............................ 0
TV Licence.............................. 12
Satellite/Cable TV...................... 40
Internet Services....................... 20
Groceries etc. ......................... 400
Clothing................................ 100
Petrol/diesel........................... 200
Road tax................................ 0
Car Insurance........................... 0
Car maintenance (including MOT)......... 100
Car parking............................. 0
Other travel............................ 0
Childcare/nursery....................... 0
Other child related expenses............ 0
Medical (prescriptions, dentist etc).... 0
Pet insurance/vet bills................. 20
Buildings insurance..................... 0
Contents insurance...................... 0
Life assurance ......................... 50
Other insurance......................... 0
Presents (birthday, christmas etc)...... 150
Haircuts................................ 10
Entertainment........................... 100
Holiday................................. 0
Emergency fund.......................... 0
Car lease............................... 230
gym..................................... 17
overdraft charges....................... 30
Total monthly expenses.................. 2942

Assets[/b]
Cash.................................... 0
House value (Gross)..................... 270000
Shares and bonds........................ 0
Car(s).................................. 500
Other assets............................ 0
Total Assets............................ 270500

Secured & HP Debts[/b]
Description....................Debt......Monthly...APR
Mortgage...................... 242000...(1063).....0
Total secured & HP debts...... 242000....

Unsecured Debts
Description....................Debt......Monthly...APR
Ex-employer loan...............11500.....500.......8.25 (£8.5k final bubble payment due Nov 2018)
Credit Card....................1900......80........18 (pay 150 per month)
Loan...........................30000.....700.......7 (3.5 years remaining)
Total unsecured debts..........43400.....1280......

Monthly Budget Summary
Total monthly income.................... 4,500
Expenses (including HP & secured debts). 2,942
Available for debt repayments........... 1,558
Monthly Unsecured debt repayments....... 1,280
Amount left after debt repayments....... 278

Personal Balance Sheet Summary
Total assets (things you own)........... 270,500
Total HP & Secured debt................. -242,000
Total Unsecured debt.................... -43,400
Net Assets.............................. -14,900

Looks so bad but trying my best to get better

Dobbibill · 21 April 2018 at 9:45PM

Starman1986 wrote: »

Hi

SOA
Statement of Affairs and Personal Balance Sheet

Household Information
Number of adults in household........... 2
Number of children in household......... 1
Number of cars owned.................... 2

Monthly Income Details
Monthly income after tax................ 2750
Partners monthly income after tax....... 1750
Benefits................................ 0 No child benefit?
Other income............................ 0
Total monthly income.................... 4500

Monthly Expense Details
Mortgage................................ 1063
Secured/HP loan repayments.............. 0
Rent.................................... 0
Management charge (leasehold property).. 0
Council tax............................. 150 Is this paid over the standard 10 months, if so change it to 12.
Electricity............................. 100
Gas..................................... 100
Oil..................................... 0
Water rates............................. 50 This is normally done over 10 months too, as above change it to 12 if it is.
Telephone (land line)................... 0
Mobile phone............................ 0
TV Licence.............................. 12
Satellite/Cable TV...................... 40
Internet Services....................... 20
Groceries etc. ......................... 400 This is high, change shops/brands/batch cook - you should be able to knock £100 off this with some planning
Clothing................................ 100 reduce this, there is no need to spend this much on new clothes every month - do a no clothes pact for 6 months.
Petrol/diesel........................... 200
Road tax................................ 0
Car Insurance........................... 0 You have 2 cars yet no insurance?
Car maintenance (including MOT)......... 100 this may need to be tweaked depending on the age of the cars.
Car parking............................. 0
Other travel............................ 0
Childcare/nursery....................... 0
Other child related expenses............ 0
Medical (prescriptions, dentist etc).... 0
Pet insurance/vet bills................. 20
Buildings insurance..................... 0 you need this.
Contents insurance...................... 0 and this - use sites like TCB & Quidco to keep the net cost down.
Life assurance ......................... 50
Other insurance......................... 0
Presents (birthday, christmas etc)...... 150 This is too much, reduce it to a minimum - do you actually put this aside - there is no cash below.
Haircuts................................ 10
Entertainment........................... 100 what does this cover?
Holiday................................. 0
Emergency fund.......................... 0 as a home-owner you need this.
Car lease............................... 230 is this for both cars and does it include insurance?
gym..................................... 17 ditch unti you are debt free.
overdraft charges....................... 30 this should be listed with your debts below - how much is it?
Total monthly expenses.................. 2942

Assets[/b]
Cash.................................... 0 where is the presents/car maintenance money?
House value (Gross)..................... 270000
Shares and bonds........................ 0
Car(s).................................. 500 is this the value for both cars?
Other assets............................ 0
Total Assets............................ 270500

Secured & HP Debts[/b]
Description....................Debt......Monthly...APR
Mortgage...................... 242000...(1063).....0 prob not 0%
Total secured & HP debts...... 242000....

Unsecured Debts
Description....................Debt......Monthly...APR
Ex-employer loan...............11500.....500.......8.25 (£8.5k final bubble payment due Nov 2018)
Credit Card....................1900......80........18 (pay 150 per month)
Loan...........................30000.....700.......7 (3.5 years remaining)
Total unsecured debts..........43400.....1280......

Monthly Budget Summary
Total monthly income.................... 4,500
Expenses (including HP & secured debts). 2,942
Available for debt repayments........... 1,558
Monthly Unsecured debt repayments....... 1,280
Amount left after debt repayments....... 278 do you really have this left? if not, keep a spending diary.

Personal Balance Sheet Summary
Total assets (things you own)........... 270,500
Total HP & Secured debt................. -242,000
Total Unsecured debt.................... -43,400
Net Assets.............................. -14,900

Looks so bad but trying my best to get better

I've added some thoughts in red above.

If you sell the house, where will you live?

You have some options to reduce costs above - then throw every penny at the debt. Consolidation does not work in most cases, even with the best intentions.
You will also need to address the reason you have the debt - could it happen again - if not, why not - if so, what can you do to prevent it?

Starman1986 · 21 April 2018 at 10:06PM

Thanks @Dobbibill, wise words!

-Child benefit we're mid claim so we should get a backdated amount, he's 15 months old now and we've never had anything
-Not sure on the council tax and water bills being over 10 or 12, will change if so
-Points noted on food/clothing/gym
-Insurances (car/building) have all been paid in a lump sum so no monthly
- We do have maintenance costs, just had to pay £600 for new tyres last month
-Presents just an estimate not put aside
-Entertainment could be a meal out, cinema or one of us out with friends, again just an estimate
-Zero emergency fund but difficult to put money aside when we're paying so much interest
-£230 is a lease for one vehicle, the other vehicle (worth £500) is owned outright. We only own the one car, the other is leased
-My overdraft about 2k, fiance positive £500
-Mortgage fixed at 3.81% until December 2018 when it reverts to 4% variable

If we sell the house, we'd continue to live with family until we save a bigger deposit to obtain an affordable mortgage, buy outright or rent somewhere.

Any thoughts on sell vs let?

Will consolidation not improve cash flow?

The reasons for being in debt are to do with a former business. I left the business, the former business partner ran it into the ground 2 years later - he reneged on an agreement to maintain repayments on a personal loan that I took to fund the business whilst still a director. I also neglected to remove my personal guarantee on the overdraft facility and a loan from funding circle. Lessons learnt on using a personal loan to fund a business, PGs and working with family.

System · 21 April 2018 at 10:13PM

Even if you pay some bills as annually,such as insurances, you still have to budget for them monthly.

System · 21 April 2018 at 10:15PM

With some changes I can see scope for about £300 to be saved frm your current monthly budget.

Starman1986 · 21 April 2018 at 10:21PM

Ah ok sorry

Car insurance - £130 per month
House insurance - £8 per month
Don't have contents insurance

Dobbibill · 21 April 2018 at 10:30PM

I would consider not doing either sell or let - with some tweaks, you should have a surplus to throw at the debts.
Living with family can be OK for short term but to let your home out and live with them can put a strain on your relationship with them and your relationship with your partner/child - make this a last resort.

You need to put annual bills in a pot monthly otherwise it becomes a challenge once a year, followed by catch up.

If you don't have the money, you cannot pay it so before you consider selling your house for debt look at every other option, even reduced payments.

Check you are on the best deal for your energy, internet and any other commitments.

Consolidation is quite misguided IMHO - you are led to believe your debt is more managable but in actual fact addressing each debt means you can move smaller amounts to 0% CCs, manage overdrafts by moving bill dates etc and pay less interest over all on lots of little bits. Consolidation means you have that amount/interest for the term of the borrowing. With a £30k loan already your affordability for more borrowing is slim at best.

The overdraft account - if this is used for bills can you move bills to the end of the month so the money is in the account longer, reducing the amount/time overdraft is being used?

cms-help · 21 April 2018 at 10:54PM

Starman1986 wrote: »

SOA
Statement of Affairs and Personal Balance Sheet

Household Information
Number of adults in household........... 2
Number of children in household......... 1
Number of cars owned.................... 2

Monthly Income Details
Monthly income after tax................ 2750
Partners monthly income after tax....... 1750
Benefits................................ 0
Other income............................ 0
Total monthly income.................... 4500

Monthly Expense Details
Mortgage................................ 1063
Secured/HP loan repayments.............. 0
Rent.................................... 0
Management charge (leasehold property).. 0
Council tax............................. 150
Electricity............................. 100 *this is a lot - are you repaying a debt on this bill?
Gas..................................... 100 *this is a lot - are you repaying a debt on this bill?
Oil..................................... 0
Water rates............................. 50 *this is a lot - is it a meter?
Telephone (land line)................... 0
Mobile phone............................ 0
TV Licence.............................. 12
Satellite/Cable TV...................... 40 *do you need this?
Groceries etc. ......................... 400 *this is very expensive for 3 people
Clothing................................ 100 *children grow quickly but look for bundles on Facebook sites.
Petrol/diesel........................... 200 *do you have a long commute as this is a lot of fuel?
Road tax................................ 0
Car Insurance........................... 0
Car maintenance (including MOT)......... 100 *do you put this aside every month or is this just a guess?
Car parking............................. 0
Other travel............................ 0
Childcare/nursery....................... 0
Other child related expenses............ 0
Medical (prescriptions, dentist etc).... 0
Pet insurance/vet bills................. 20
Buildings insurance..................... 0
Contents insurance...................... 0
Life assurance ......................... 50 *this seems expensive
Other insurance......................... 0
Presents (birthday, christmas etc)...... 150 *this is a lot of money to spend on presents EVERY month
Haircuts................................ 10
Entertainment........................... 100 * you could cut this if you needed to, even if only as a temporary measure
Holiday................................. 0
Emergency fund.......................... 0
Car lease............................... 230
gym..................................... 17
overdraft charges....................... 30
Total monthly expenses.................. 2942

Assets[/b]
Cash.................................... 0
House value (Gross)..................... 270000
Shares and bonds........................ 0
Car(s).................................. 500
Other assets............................ 0
Total Assets............................ 270500

Secured & HP Debts[/b]
Description....................Debt......Monthly...APR
Mortgage...................... 242000...(1063).....0
Total secured & HP debts...... 242000....

Unsecured Debts
Description....................Debt......Monthly...APR
Ex-employer loan...............11500.....500.......8.25 (£8.5k final bubble payment due Nov 2018)
Credit Card....................1900......80........18 (pay 150 per month)
Loan...........................30000.....700.......7 (3.5 years remaining)
Total unsecured debts..........43400.....1280......

Monthly Budget Summary
Total monthly income.................... 4,500
Expenses (including HP & secured debts). 2,942
Available for debt repayments........... 1,558
Monthly Unsecured debt repayments....... 1,280
Amount left after debt repayments....... 278

Personal Balance Sheet Summary
Total assets (things you own)........... 270,500
Total HP & Secured debt................. -242,000
Total Unsecured debt.................... -43,400
Net Assets.............................. -14,900

Looks so bad but trying my best to get better

There are a number of improvements you could make if you put your mind to it and there's a surplus of £270 already.

Why is your car insurance so expensive at £130 a month? (£1500+ per year)

You need contents insurance.

Are you eligible for any better mortgage deals? 3.81% seems very high. Lots of offers out there at under 2%.

pelirocco · 21 April 2018 at 11:52PM

According to your SOA you have a surplus , plus as others have pointed out areas where you can make savings . In my opinion selling a house to pay off debt is a very very last resort, saving for a deposit and getting back on the housing ladder will be difficult. I note you have and employee loan that needs to be paid back by August,can this be renegotiated ....allthough if you don't have the money , you don't have the money (an employee loan of this value will be treated as a benefit in kind I believe ,and will be taxable )

Starman1986 · 22 April 2018 at 9:50AM

Thanks for the comments!

- On the mortgage, as the new business has only been incorporated 18 months and salary has fluctuated I think we'll struggle to get a better deal, is this correct? Not even sure what happens when we get to December, assume it just automatically increases? Am I able to just switch?

- Overdraft is just used for living and struggle to escape it at all. Will look at billing dates

- On consolidation, I understand the need to address each debt but it's actually having a detrimental effect on the business having to take so much money out of it each month, i.e. slowing growth and overall output which leads to a longer journey out of debt. The consolidation would be used to ease the pressure on personal cash flow and make sure the company stays solvent or else we have zero income. Plus, I can't shift the ex-employer debt to a 0% credit card. I could probably balance transfer the 2k credit card to another?

Everyone has said don't sell the house, why? Why would I want a mortgage debt for the next 30 years of my life? It's the largest debt and therefore more risk to my family?

pennystretcher · 22 April 2018 at 10:07AM

I would sell the house as a final resort. Most likely you'll end up paying the same in rent, if not more.

In December, have a look at the remortgaging options that your current lender has and of course what else is available elsewhere. Remortgaging is actually easier than most people think (I did it twice without an IFA, you just need to know what options you want, deal length, interest, portability - although this is sort of a scam as you can only port over what you owe at the moment), so don't be put off and explore options other than your current lender. And yes, once your deal ends, the rate will go up automatically, you should get notified what the new payment will be..

Your monthly income for three people is more than resonable, so I'd just tighten up the belts and tackle the debt head on. Although the total debt is over £40k, you should be able to reduce it reasonably quickly. Do a monthly budget showing what money is going out and when, after payday pay off what you need to, set a monthly spend limit and anything above that, overpay debt. It may take couple of months to get this right, so set yourself an emergency fund to start with so that you can dip into that while you get used to new budget.

Good luck on your DFW journey - I'm sure you can do it!!!!

ps. No mobile phone charges or are they included in something else in your SOA?

Need some advice - SOA - Selling home to pay off debt?

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