Is it ever right to sell a house to pay off a debt?

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Date: 1 July 2020

A house with a sold sign in the garden

For those in debt, the prospect of selling a property that they have worked hard to buy, and which may even be a family home can be heart-breaking. Years of saving, planning and decorating work, as well as happy family memories, can be gone in the time is takes the auctioneer's hammers to fall and the new owner to sign on the dotted line…

But for others, selling a much cherished property can lead to a new sense of freedom, released from debts that may have even been caused by the property.

We spoke to the property experts at House Buy Fast who told us that there are two main groups of people who sell to release themselves from accumulated debts. Here's what they said;

The investor

This is somebody who has bought a 'spare' property either for investment (buy to let), or to house a relative – perhaps a son or daughter whilst at university.

The property is likely to be mortgaged - although if it has been owned for more than a few years it will almost certainly be worth more than when it was purchased. If the home is no longer needed, selling it can free up substantial 'locked up' capital as well as removing the potential liability that a property can represent (values do go down as well as up and properties can require substantial on-going maintenance).

Jonathan Rolande of House Buy Fast explains "Many forget that owning an investment property can be quite painful in the early years whilst the mortgage is still high. Some landlords don't have the financial reserves required to cover unexpected repair bills or months when the property is unlet.

"With property price inflation that has often outpaced rental increases, the yield (that's the rental income divided by the value x100 to get the annual percentage) may well be lower than interest being paid on debts, especially once repairs and other expenses are factored in."

Many landlords opt to sell to pay off more expensive debt.

The owner occupier

This is usually a much more difficult decision as the property is also a home. But there can be advantages. Selling up and moving into a rental property might allow a sizable and expensive debt to be paid off and helps lose that associated sense of burden.

Renting a property is also much more flexible. It is easier to move to a new area to follow work or to be closer to a preferred school.

However, once off the property ladder many find it hard to return - especially if prices continue to go up. There is also much less security with a rental. You could be subject to just a couple of months' notice to leave your home if your landlord wants it back.

Jonathan explains "It's probably one of the biggest decisions anyone will make. I would suggest taking good advice from a solicitor, financial advisor and organisations like Citizens Advice before making any decision.

There are lots of really good places to go to get help and it may mean that a sale of the property isn't needed after all."

But what if a decision is made to sell?

"There are lots of ways to sell these days," says Jonathan. "Estate agents can be the preferred route for many, but auctions and professional home buying companies offer more certainty of sale, even if the price paid may be less than full value. It's all about weighing up the various pros and cons of each sale method."

Copyright 2020. Featured article by Jonathan Rolande of House Buy Fast, founder of the National Association of Property Buyers

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