I'm a property expert that still remembers the days when having broadband was a selling point! My articles cover issues that homesellers face in the UK and answer the questions we're all asking. I've bought and sold properties and helped others do the same, so my writing comes from years of experience.
Read Full Bio >Being in debt is always concerning, and, as soon as they find themselves in financial trouble of this kind, most people are keen to find a swift and effective way out.
Selling a major asset, such as property, often seems like the only option to people struggling to pay what they owe.
If you think you may need to sell your house fast to pay off debt, read on. Here, we discuss the ways in which you may approach the process, and explore whether selling up is, in fact, the best solution at all.
The Size and Nature of Your Debt
To whom are you in debt, and how much do you owe (including interest?). Certain types of debt – your mortgage, for example – should not represent a cause for concern as long as you are still capable of gradually paying it off.
If you find yourself in arrears, or if your financial situation has changed, you shouldn’t necessarily rush into selling in order to clear that debt.
Talk to your mortgage provider and a financial advisor. You may be able to renegotiate the terms of the loan, or arrange to repay it in smaller amounts over a greater period of time.
You may even have the opportunity to remortgage. If your property’s value has increased since you last took out your mortgage, you will have more equity than before. This is handy if you are considering equity release.
However, if you are in debt to a payday loan or credit card company, you may be facing greater interest and poorer credit the longer you wait.
While you may also be able to work out a repayment plan in scenarios of this kind, it may also be intelligent to consider selling an asset in order to access a lump sum quickly.
The Amount You Owe
It’s important to ask yourself whether the amount you will secure from the sale of your property will be enough to pay off your debt.
Long-term debt cannot be resolved by the sale of your property, and, if possible, keeping hold of this asset may be the more sensible option as it may afford you greater security in the future.
Speaking to a financial advisor and asking for guidance in the management of your debt moving forward may reveal alternative options of which you have not been previously aware.
How Much is My House Worth – and How Much Equity Do I Have?
You can get a good idea of the current value of your property by researching recent sale prices of similar homes in your area. It’s possible to do this by looking up your postcode on platforms like Rightmove and Zoopla.
You’ll need to take into consideration how long ago these sales took place, as well as the comparability of your home against the sold properties.
For example, you should prioritise properties of a similar age that have the same number of bedrooms as yours, along with the same amount of outdoor space, and are in a similar condition or state of repair.
The sold properties should also have a similar position or outlook to yours (i.e. if your property is mid-terrace, you should be comparing it against other mid-terraces rather than end-terraces).
If you are able to find a number of comparable properties that have sold recently, try to use their sale prices to find the average, and consider this a good indication of your own home’s value.
Estate agents often provide free estimated valuations, too. It’s a good idea to arrange at least three of these for the utmost accuracy.
Once you have a clear idea of the value of your property, you can calculate the amount of equity you are likely to have. Find out how much you have outstanding on your mortgage, then subtract this from your property’s value.
This will reveal an estimate of the equity you own, which is an indication of the amount you are likely to receive should you sell.
Equity Release
It is possible to “release” some of the equity from your property in order to access a lump sum of cash fast. The most straightforward way to do this is to sell, but alternatively, you might decide to take out a new mortgage.
You can either use your existing lender or switch to a new one in order to achieve this. The new mortgage for which you should apply should be higher than your existing mortgage by the same amount you would like to “release”.
However, it is worth noting that if you are in debt or mortgage arrears, any lender is likely to consider you “higher risk” and it will be harder to get approved for a new loan.
Negative Equity
It is possible that, upon getting your property valued, you may find that your outstanding mortgage is worth more than the property’s current value. This is known as being in “negative equity”.
This means that you will not be able to clear any mortgage debt by selling – so staying in your home and seeking out alternative options will invariably be a better approach.
Speed of Selling
If you do decide to sell your house to pay off debt, you need to be aware of the likely speed of the process.
Some methods of sale take much longer than others – and, in the interim, the interest on your debt will continue to rise. You may even face repossession or court orders before you are able to access funds from any property transaction.
Estate Agents
Generally, traditional estate agency sales take an average of 114 days at the time of writing. That translates to more than 16 weeks.
It can take even longer with a complex chain. A “chain” is where you as the seller are required to wait for the buyer of your property to sell their own home in order to access the funds to purchase yours. Their buyers in turn may be reliant on the sale of their own house.
This can go on indefinitely – and, should a sale further down the chain fall through – it may cause severe delays or even the termination of your own transaction.
However, before this even begins, you’ll have to wait for house hunters to arrange viewings of your property. After this, you’ll be reliant on them making an offer, then on their solicitor and yours, along with your estate agent, to fulfil all duties and complete all processes required.
It is possible for buyers to pull out at the very last minute, too, which can cause severe problems if you are awaiting the proceeds of the sale to pay off your debt.
Auctions
Property auctions are almost invariably quicker than estate agencies.
Via the “traditional” or “unconditional” method of auction, buyers will be able to bid on your property at a set date and time.
As long as the winning bid surpasses your “reserve price” – a figure agreed privately between the seller and the auction house as the lowest acceptable – the buyer who has made the offer will be required to pay a 10% deposit immediately.
They will then be legally bound to purchase the property. From the time that the “gavel falls”, the winning bidder will have a set period of time – usually 28 days – to pay in full.
Sales via “modern” or “conditional” auction often take a little longer, as your property may be listed online for several weeks, with bidding permitted throughout, from the time the lot goes “live”.
Once bidding is closed, the winner is required to pay a 5% “reservation fee”, which holds the property while they make arrangements such as arranging valuations, applying for a mortgage and instructing a conveyancer.
They usually have 28 days in which to do this, and in which to pay the 10% deposit. Once this period is over, they will have a further 28 days to complete.
It is important to note that if you sell via the “modern method” of auction, the winning bidder is not legally bound to purchase the property.
If the transaction falls through, they must forfeit the 5% reservation fee (and the 10% deposit if they have paid it), but the property will then revert back to the ownership of the auction seller.
This represents more of a risk, particularly if the vendor is reliant on selling within a certain time frame in order to pay off debts.
It is generally quicker to use a fast home buying – or “we buy any home” organisation to sell your property if you need access to the funds from a transaction as swiftly as possible.
These organisations buy directly from the vendor, with no need to wait for viewings or chains and a far lower likelihood of a sale falling through.
Companies of this kind may be able to complete a transaction in as few as 7 – 21 days, as they are not reliant on any third parties to come up with the funds to buy your property.
Cost of Selling
Estate agents and auction houses charge a range of fees for their services. The exact amounts vary between businesses, so it is important to check how much it is likely to cost you to sell via these methods – as this may set you back even further when it comes to repaying your debt.
You will also need to pay a conveyancing specialist to handle all legal matters relating to your sale.
Finally, in order to receive the best possible offers or valuations in the slightly longer term, you may decide to make certain changes to your property in the short term.
This can run up significant costs, too. However, fast property buying companies will often buy any house, in any location, in any condition – so you don’t need to spend money to upgrade your home in order to achieve a sale.
Many organisations of this kind will also waive agency fees and cover legal costs on your behalf, reducing the cost of selling.
It is important to note that genuine fast home buying companies are unable to offer 100% of your property’s market value. This is because they make their money by buying at a discounted rate and selling on the open market.
If you are seeking a lump-sum payment as quickly as possible in order to prevent your debt from rising further, this route may be the most sensible. However, if you wish to make as much of a profit as you can from the sale, you may prefer to look elsewhere.
Estate agencies may take longer and auction may be less secure – and both options may cost you more in terms of fees – but you have a greater chance of receiving 100% of your home’s market value via these methods.
Your Place on the Property Ladder
You should definitely think about how valuable it is to retain your place on the property ladder before you decide to sell to pay off debts.
For many people, their property is their most valuable asset – which means that, further down the line, they will be very likely to regret selling up rather than finding alternative ways to manage their repayments.
Some individuals originally invested in property in order to fund their retirement further down the line, while others will struggle to get back into the ladder once they’ve sold their current house.
Compared to other types of asset, property is among the most secure. For that reason, selling it should be considered a last resort in many cases.
Selling Property to Pay for Care
If you are worried about falling into debt due to the cost of a retirement home or in-home care, you may consider releasing equity or downsizing to free up some funds.
However, you should first check to see if you might qualify for government-funded or subsidised care, or financial assistance from a charitable organisation.
Try to cover all bases by making contact with bodies such as the Citizens Advice Bureau for assistance and guidance before resorting to selling a major asset.
What Happens if My House is Collateral on a Loan?
If you have taken out a loan with your property as collateral, you will usually still be able to sell that property as long as you either pay off the loan immediately or transfer it to your new home.
Either way, you will need the lender’s consent to sell before you may do so. If you do not, both you and the property’s buyer will be liable to be taken to court by the lender.
Can My Mortgage Lender Sell My Home to Cover My Debt?
If you have been in arrears for some time, and have not attempted to discuss any adjustment to your repayments with your lender, they may take steps towards the repossession and sale of your property.
In most cases, mortgage lenders will not attempt this until you are at least three months in arrears – and they should not attempt this without trying to work with you to remedy the issue.
In order to repossess your property, the lender will need to start court action against you. They must give you sufficient notice of this, along with the details of the payments you have missed.
The court may reject the order if you are able to provide enough evidence to support that your mortgage lender did not follow the proper process.
Otherwise, you may receive an outright order, which means you will be given a minimum of 4 weeks’ notice to vacate your property, or a suspended order, where you will be permitted to stay in your property as long as you make certain payments and adhere to terms set by the court.
In Conclusion
If you are worried about debt, selling your property need not be the first port of call.
Instead, you should be sure to speak to your mortgage or loan lender, contact the Citizens Advice Bureau or Shelter and take a look at the gov.uk website to find out if there are ways to arrange manageable repayments.
If you are unable to find an alternative approach, or if you plan to sell your property anyway, the quickest and most straightforward way to do this is via a fast home buying company.
If you would like to receive a no obligation cash offer for your property, we can help.Simply get in touch with our team of friendly experts today. If you are happy to move forward with our initial quote, we may be able to buy your property in as few as seven days.
