My background is now re-made, however after trying to add it Rachel suggested I isolate the items into sprites and build it that way instead of the single image. Ultimately this made for a nicer background and got rid of the black box I had initially.
The original idea was as shown here, using grey to darken the parts of the house that were not the current scene.



This was the sprite sheet I came up with. Turning the skybox into a sky blue colour meant i didnt need a sprite for that.
Final level background