Using equity to pay debts

[peekaboo12]

Hi we are in the process of looking for a new house once I return from maternity leave. 3 maternity leaves in a short space of time have meant that a) we are rapidly outgrowing our current house and b)we've used up our saving and some credit during this time.

Our house should have around 50k equity once we sell and we are hoping to buy a house around 230k - is it possible to keep 15k back for paying off debts, removal costs and creating a small emergency fund meaning we would be putting forward a 35k deposit for our new home using the equity we have? This would really reduce our outgoings as it would pay off all of our credit cards etc and allow us to purchase a small amount of furniture needed for a bigger home. The last time we bought we were first time buyers so I've no idea if this is an option or if you have to put all of your equity into a deposit?

It's your money you can do what you want with it I would look at how much the debt is costing you though. Say you have £10,000 debt and will pay it back in 7 years. If you use your equity to pay that off that's £10,000 more on your mortgage probably over 20 odd years. So will cost more win the long run.

Do you have to move now OP?

You don't have a huge deposit, then you're going to use some £ to pay debt.

Could you try to pay off your debt now, as aggressively as possible, then you should be able to get a mortgage with a better interest rate due to having a lower LTV?

We could wait a few months before moving but we have had some interest in our house (we put it up to see what the interest was thinking it would take longer to sell).

I agree the deposit isn't huge but it works out about 15 percent of the new property. We could use some of the equity to put the bigger deposit down and not pay the credit cards though but that would work out more per month on payments but I do understand in the long run paying off more. I suppose the plan I had thought of was to pay the CC now and free up some disposable income and then one the (horribly expensive) nursery years are over look to overpay the mortgage as much as we can.

Moving now will definitely mean a change in lifestyle and really tightening our belts too but our current home is very small and 3dc come with a mountain of clutter lol. It's so hard to know what to do for the best.

Do you have a mortgage in principle? It may just help you work through the figures. However yes you can and it would reduce the interest you are paying on your debts.

If you have CC debts, these would count when doing a financial assessment for a mortgage. You could port over your current mortgage but would still be assessed for affordability. In addition, the higher the deposit, the more favourable mortgage rate you might get.

I think you can easily do what you're suggesting OP. Discuss it with the mortgage assessor.

As long as you have enough for the deposit on your new house then yes. It would be mad to spend equity on furniture though..

Do it with a max of £10k and don't buy new furniture with it. There's loads of good secondhand furniture out there for little or nothing ( freecycle, facebook marketplace, Ebay, British Heart Foundation etc), and the kids are only going to trash it over the next few years anyway. 😊

Increasing your mortgage is not a great idea. Rather than buying new furniture you need to find secondhand stuff and pay off your debts before you move. If you have large debts, your mortgage company are more likely to reject the mortgage.

OK to pay debts but not to buy new stuff with it!

I’ve done this a couple of times when I moved.

Thanks everyone, just to clarify I wouldn't be spending much on furniture at all - I meant possibly a small sofa from market place and the house needs fitted with blinds and curtains etc nothing extravagant.

If things are that tight that you would need to use equity to buy a second hand sofa and some blinds I'd really think about whether you can afford it. Moving tends to throw up all sorts on unexpected costs. I really think you need a buffer. In the last 2 houses I bought both needed a new boiler within 6 months of moving in. Would you end up in financial difficulty if/when issues like that arise in your new home?