May 07, 2015
Have you found a home you want to buy but haven’t sold your current property?
If the answer is yes, don’t fret – you are not alone.
While it would be nice to buy a new home at the exact same time as you sell your old one, the reality is many people are often faced with a situation where they have bought a new home before their current property has been sold.
And while buying before you sell certainly has its upsides, for example, you will only have to move once and you will effectively avoid having to rent somewhere else in between selling and buying, there are some things you need to consider before pushing ahead with this line of attack.
Sacrificing the sale price
If you do end up buying before you sell, you may find there is pressure to sell your existing property quickly. This may result in a lower than anticipated price being accepted and could potentially leave you vulnerable to unexpected fluctuations in the property market.
Furthermore, if the property market is quite sluggish when you are trying to sell, you may find the whole process takes more time than you had originally estimated.
Build a bridge
If selling your property does end up taking longer than originally anticipated, you may find yourself in need of a bridging loan in order to finance owning two properties at the same time.
Like other home loans, bridging loans will offer you a choice of fixed and variable rates and features like interest-only repayments. That said, bridging finance has a shorter loan term – usually between six and 12 months. Furthermore, the interest rate on this type of loan could potentially be higher than a standard variable loan.
While some lenders will charge the standard variable rate on a bridging loan, others will adjust their interest rate based on your circumstance and how risky they consider your situation to be.
As a rule of thumb, it is often a good idea to aim to borrow less than 80% of the value of both properties combined, that way you can avoid paying Lender's Mortgage Insurance.
When you’re doing all the sums it is important to remember that you may not get the price for your current home that your agent originally quoted. In addition, remember that there are a lot of fees, charges and extra costs that come with buying and selling property.
As a mortgage broker, I can advise you on your situation and help you work out the best plan of attack. If bridging finance is needed, I can step you through the process and ensure you are in the right product for your needs.