Buying before you have sold - How does it work??

k-hkr

Hi, I have limited experience in the housing market having only ever owned 3 homes. I will be shortly, in next few weeks, getting some inheritance money through and am keen to move home. What puts me off is the whole selling/chain thing. We have seen a house which ticks all our boxes and has no chain and want to go for it and then sell ours afterwards.

The figures: current house value £115k with £62k mortgage (not tied)
new house value/offer price (asking price is £195000) £187000 as example.

Cash input £50k.

Salary £48k + wife is receives DLA due to arthritis so not sure if they accept her 'income' although it is joint mortgage.

What I would LIKE to be able to do is convert my existing mortgage to interest only (currently 34k is anyway). Then borrow £137k on new home with the 50k as deposit, also on interest only basis until existing one sold. Then we can put the 50k or so left after fees etc off the new mortgage leaving around 87k and start making repayments against capital then. These figs are approx cos guessing the fees a bit.

My example is based on a realistic asking price for our house and what I would believe would be a realistic offer for the new one.

Question is - is this a scenario lenders would be happy with? I am thinking of either approaching my existing lender, Earl Shilton BS, who we recently came off a deal with but are paying BoE + 2% with a 3% cap, hence 3%. If they would do all the above under that deal I would be a very happy bunny!! Even if they allowed my main mortgage on that, the 137k and converted the 'old' house mortgage to SVR it would be ok as it is only 62k. Other option is to approach a whole of market broker and remortagae in same deal. As we would end up with aprox £87k mortgage at end, it would not really be worth paying £1000+ on fees for a decent rate.

What are your thoughts advice.

Cheers

k-hkr

No advice then guys? All I am after is to know if this is an option or if we would have to get an expensive bridging loan.

kissjenn

Hi,

I'd personally speak to a Independent Mortgage Adviser. However you carve it up you're looking to have over 4 times your salary on mortgage while you straddle two houses.

Also have you factored in to the calcs all the solictors fees, HIP, stamp duty etc. That will knock potentially £5k off your £50k.

Options:

a) sell then buy and potentially lose this dream house,
b) bridging loan,
c) convert old house to Buy to Let and plough £50k into new one. You can then take your time to sell old one and the current ltv would be acceptable to lenders.
d) Plough all non-inheiritance savings into old home if they can reduce debt by another £25k you'll hit the 3.5 multiple and have a healthy amount of equity in both. When old one sells then you can pick the mortgage product you want for the new one, so a bog standard no-tie variable may be best in the short term.

Take professional advice.

pinkshoes

As a general rule of thumb, you can probably borrow 3.5x your salary, so if you earn £48k, then you can borrow about £168k.

But... you've already borrowed £53k, leaving you with £115k, which wouldn't be enough to buy the second house.

I don't think changing it to interest only would make any difference.

Go speak to a good mortgage advisor. Why not sell your current home, rent for a while, then you would be in a much better position to buy again.

k-hkr

Thanks. I wasn't thinking about lending multiples to be honest with it being a short term arrangement having the two houses, but just the affordability factor hence the interest only for that period. I realise I would have 200k but on interest only that would be £600/m at the 3% deal I am on now so is not a problem even at a bit higher rate. But if lenders are going to have the 3.5 limit even for the short term arrangement then it would be a non starter.

The idea of selling and renting for 6 months while we find a house is a good one apart from the hassle of moving twice with all the crap we have! Will consider that one tho as that hassle may be the lesser evil of being in a chain!

k-hkr

We went to see the house and found out quite a lot more. I am gutted but think it is just out of our reach because they have 2 offers in at the asking price of 195k. This on a house that last sold for 279k in 2007. It was on market with a previous agent recently for 249k and had interest but the corporate client withdrew it for some reason. They then approached Larards and asked for what they call a '2 month' price, ie, a price whereby it will be gone within 2 months. Hence the givaway price of 195k.

By my reckoning, if we got it and then sold ours we would end up with 100k on mortgage and would stay for 5-7 years when I am sure it would be worth at least the 2007 price, but probably more once we have done some minor improvements. It had been bought in 2005 for 110k and completely renovated to a high standard. Sold for 279k to a landlord who rented it out and then went bankrupt, hence the repo sale. It is just magnolia throught with cheap carpets etc but is solid and sound and would soon look a different house with a bit of tlc.
We planned to sell up when value rose to 280k area again and in the meantime pay down the mortgage to around 60k mark with one or two investments coming good within 5 yrs. Then we would downsize to 150k house with no mortgage and have money in bank.

Trouble is that our 50k 'inheritance' deposit is probably 6-8 weeks away and the estate agents say they want a 4 week completion from any offer made. The mortgage is do-able, although much more expensive than hoped while we have both house. I would sell my car to help out as it would be such a good deal in the long run. It is just the timing is out by a few weeks. I am sure people will say that there will be other houses and I am sure there will be. But will there any around when we come to buy that offer such great value AND tick all our boxes?