Increasing my debt and losing Local Housing Allowance in one move.

When I bought my flat in 2006 I was a little naive and believed that the 73 year lease the property had was plenty. It wasn’t. 6 years on and  the lease now has 67 years to run and very few mortgage companies would lend on it.

This means that the value of the property is considerably lower as I am limited to cash buyers and investors rather than someone looking for a home.

I am in the middle of lease extensions negotiations and it looks like the whole process will cost in the region of £10,000.00. I have taken out a loan to cover this. I know this is more debt but hopefully it will put me in a position whereby if I need to sell the flat it will not cripple me completely. I’ve been looking on rightmove and strongly believe that a good long lease with no ground rent will make the property stand out from it’s competition.

However the downside of increasing the lease is that I will no longer qualify for Housing Benefit as I’m confident I would have more than £16,000.00 equity in the property. The loan will costs me £180.000 per month in repayments and I receive £450.00 per month in Local Housing Allowance. The net loss to me each month is therefore £639.00 per month.

I know that all the benefits I receive will now go as soon as my claims are all rolled into Universal Credit so my reasoning is I  may as well start to live without them now and by doing this it will be a gradual process rather than losing it all in one go.

I’m confident that even with a wife and four children I can mange my finances in such a way that we will still cover all the bills and have around £450.00 per month spare. We live in a nice home and have a great life. I’m positive that by looking to the long-term we’ll get through this in a much better position than we started.

However I’m not going to lie. I am slightly terrified.

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