We want to buy before we've sold our current home. How can we do this?
Posted on 11 June 2013 by Kevin
My wife and I currently own our main residence which has a small mortgage outstanding circa £10,000. We have approx' £10,000 in savings with no debt. Our combined salaries are £100,000 per annum. We need to move due to job relocation. We are having trouble selling our current home valued at £160,000. We want to buy a property for sale at approx £215,000. Could we raise a mortgage against both properties to enable us to purchase the new property whilst leaving our current property up for sale. Once sold we would then look to pay the surplus (after fees and taxes) from the sale off the new mortgage. Is this possible with any lenders?
Many thanks for your enquiry. This is an increasingly familiar scenario as quite often the sale of the current home lags behind the need to complete on the new purchase. There maybe different reasons - from a stagnant market to your prospective purchase being stuck in a chain.
I have outlined two options for you below:
Option 1: You could borrow against both properties with a bridging loan. You need £215,000 to purchase your new home and £10,000 to redeem the mortgage with your existing lender. You have £10,000 available in savings but perhaps you will be keeping some or most of these funds for moving costs, valuation fees and legal fees. Therefore we'd need to raise £225,000. Your income is good and I assume you have no other personal liabilities and that your credit is well maintained with no missed payments.
The loan can be split between the two properties to get the lowest loan to values (LTV's) where the most attractive rates are. The overall Loan to Value is 60%: £225,000 on £375,000 (£160,000 value of current property and £215,000 the purchase price of the new property).
Bridging loans are more expensive than traditional mortgage products with interest rates from 4.5%. You also need to factor in the fees involved, which can be between 1 to 2% of the loan advance, along with two valuation fees, solicitors’ costs and disbursements, which may make this quite expensive.
Option 2:A more effective solution may be to raise funds on your current property to help with the deposit on the new purchase up to say 60%LTV and let the current home out (Let to Buy). Most Let to Buy rates will see you having to stay with the lender for at least two years, although there are some that will allow you an early exit, in the event you wish to keep your options on seeling the property open. You can borrow up to 60% on the current home, which is £96,000 to give you access to better mortgage options and interest rates starting from c. 3%.
The funds will then be used to repay the existing lender, which leave £86,000 to put towards the purchase price of the new home. The mortgage on the new home will be £215,000 less £86,000 = £129,000. £129,000 is again 60% LTV on the new property which will give you access to residential rates starting from 1.95%.
The second option will provide you with a breathing space to move and settle in the new property while looking for a suitable buyer to your previous home. Alternatively, you may decide to keep the let property and sell it before or during your retirement.
Of course, we will be happy to discuss the above options and your requirements in detail before we make a suitable recommendation.
More than mortgages, talk to me about: Financial Protection | Investments | Personal and Corporate Pensions | Home Insurance General Insurance | Valuations | Conveyancing | Wills | Home finders
Answers provided in response to Ask the experts are based on the information provided and do not constitute advice under the Financial Services & Markets Act. They reflect the personal views of the authors and do not necessarily represent the views, positions, strategies or opinions of John Charcol. All comments are made in good faith, and John Charcol will not accept liability for them.
We recommend you seek professional advice with regard to any of these topics where appropriate.
YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY DEBT SECURED ON IT.
John Charcol is a trading name of John Charcol Limited and its Appointed Representatives. John Charcol Limited is authorised and regulated by the Financial Conduct Authority. The Financial Services Register number is 665649. Registered in England No. 9157892. Registered office address for John Charcol Limited is 5th Floor, Cutlers Exchange, 123 Houndsditch, London, EC3A 7BU. The FCA does not regulate some investment mortgage contracts. Calls may be recorded for training and monitoring.