Buying a house before selling your current one can be a bit of a juggling act. It’s not without its challenges, but with careful planning, the process can be smooth and rewarding. Here’s our take on how to buy a house before selling your own, regardless of market conditions.
Why it’s so important to understand current market conditions
Before you can even consider moving, it’s important to have a firm grasp on the current housing market. The state of the market affects your buying and selling experience, and being well-informed is helpful for making a successful purchase before a sale.
Understanding market conditions isn’t just about looking at house prices, although that’s certainly part of it. It’s also about knowing the average selling times for properties similar to yours, which can provide context for how long you might expect to wait before your house sells.
Keep an eye on buyer demand in your area, too. High demand may lead to quicker sales and potentially larger offers, while low demand often means your house takes longer to sell and may even require you to reduce the asking price. This can influence your decision to buy before selling because you’ll need to be prepared to potentially carry two mortgages if your home doesn’t sell quickly.
Another aspect to consider is the broader economic conditions. Interest rates, for example, can affect both the cost of your new mortgage and the ease with which potential buyers can secure their own financing. Economic uncertainty tends to make buyers more cautious, potentially slowing down the market in the process.
Finally, it’s wise to keep an eye on any changes in property laws or regulations that could impact your sale or purchase. These changes might not be fundamental to selling your home but can provide further context. For instance, changes in stamp duty or other taxes, as well as changes to planning permissions or building regulations, can all impact buying and selling decisions.
What are the pros and cons of buying before selling a house?
There’s no one-size-fits-all answer to whether you should buy before you sell. That’s why it’s important to weigh up the pros and cons before making a decision.
- No rush to buy. Buying a new house before selling your current one means you can take your time to find the perfect home that suits your needs. There’s no pressure to accept a less-than-ideal property because you need to move out quickly.
- No need for temporary accommodation or storage. Buying before selling means you can move directly from your old home to your new one, skipping the inconvenience and extra cost of finding a temporary place to live or storage for your items..
- Negotiating power. If you’re not reliant on the sale of your existing home to finance the purchase of the new one, as a ‘chain-free’ buyer, you may have more leverage when negotiating the price of your new property.
- Risk of a chain. If your new home purchase is dependent on selling your current property, you could end up in a chain. Property chains can complicate the buying process and lead to delays if the sale of your old home doesn’t go as planned. At worst, it could see the sale fall through because the chain breaks. In the UK, 24% of home sales fall through due to the property chain breaking.
- Financial burden. There’s the risk of owning two properties at once if your old house doesn’t sell quickly. This can lead to heavy financial burden as a result, especially if you’re paying two mortgages at the same time.
- Market uncertainty. The housing market can, at times, be unpredictable. If it takes longer than expected to sell your old home, or if you have to sell it for less than you hoped, this could negatively impact your financial situation. However, in this situation you can always turn to Property Rescue to sell your house fast.
What does it mean to be in a ‘chain’?
Being in a ‘chain’ refers to when multiple house purchases and sales are interconnected, each reliant on the successful completion of the other transactions. If you’re buying a house and the seller is also buying another house, and that seller is buying from another, you’re all in a property chain.
This chain can lengthen if each buyer is also selling a property. The complexity can lead to delays as every transaction must complete simultaneously. Breaks in the chain, such as a buyer pulling out, can cause the entire chain to collapse, potentially leading to lost time and money for all parties involved. If chains, break and you need to sell a property fast, Property Rescue will gladly buy your property from you. We can exchange contracts in as little as 48 hours.
Making the decision to buy a house before selling your existing one requires careful financial planning. One of the first considerations is to ensure you have enough cash to cover the cost of a new property before the sale of your current one completes. Some options include:
Bridging loans can be a useful option in this situation, providing short-term finance to ‘bridge’ the gap between buying your new house and selling your old one. It’s worth noting, however, that these loans often come with higher interest rates than standard mortgages, so it’s important to factor this into your budgeting. Most lenders also require a solid exit strategy from the borrower, which in this case would be the sale of your old home.
Let to buy
Let to buy is a process where homeowners rent out their current property and buy a new one to live in. This strategy means you can purchase a new home while letting out your current one and earning rental income. You’ll need a let-to-buy mortgage on the original house and a residential mortgage on the new property. Just bear in mind that you’ll require two mortgages. The buy-to-let mortgage will be evaluated by the lender based on the potential rental income, while the residential mortgage will be evaluated based on your personal household income.
Consider your credit score
Having a good credit score is always a positive factor, as this will affect your ability to secure a mortgage or loan. If your credit score isn’t where it needs to be, you might want to explore ways to improve it before proceeding with your plans, such as registering on the electoral roll and managing any debts.
Don’t forget to account for other costs associated with buying and selling houses, such as estate agent fees, conveyancing fees and stamp duty. These can add up and should be included in your overall financial plan.
The legal aspect of buying a house before selling your existing one isn’t particularly different to any house purchase or sale. Still, it’s worth familiarising yourself with the process and any legal considerations.
The conveyancing process involves the legal transfer of property ownership from one person to another, and your solicitor will undertake tasks such as conducting property searches, dealing with the Land Registry and managing contracts. Even if you don’t sell your home, you’ll need to go through this process when buying a new one.
Speaking of contracts, it’s important to know what you’re signing. Contracts detail the terms of the property transaction, including the agreed price, property boundaries and any special conditions. You’ll want to be clear on your contractual obligations, as breaking these could result in financial penalties.
Moreover, you should be aware of your legal obligations when selling and buying property, such as providing accurate information when selling and ensuring your new property complies with building regulations.
Another aspect to consider is Stamp Duty. You pay more stamp duty on the purchase of a second property, however, you can claim it back once you have sold your original property.
Buying a house before selling your existing one isn’t an easy decision. It involves careful consideration of your financial situation, the housing market and your personal circumstances. But with the right planning and support, it can be a strategic move that works out brilliantly.
If you are thinking of selling, go and check out our online property valuation tool. It will instantly give you an accurate estimate of your home’s current value. It’s totally free to use, and takes 10-seconds to get your valuation.