Buying new place before selling old one

cralol

I currently have a flat in Scotland which I expect would sell for £130,000. On this property I have 14 months of a 2-year fixed mortgage rate deal remaining on this property an an outstanding mortgage balance of approximately £45,000. I therefore have approximately £85,000 of equity in the flat.

My other half and I would like to buy a bigger flat with an approximate purchase price of £350,000. We have not yet found a specific flat we want to make an offer on, though.

We would like to use the equity in our existing flat to fund the deposit for the new place, but we would prefer NOT to sell the old place until we have found (and had an offer accepted on a new place). Crucially, we are looking for quite a specific style of flat in a specific area and only 1 or 2 of them come on the market each year, so we don't want to be in a position where our old home sells but we haven't found a new home yet. But at the same time, we suspect that any sellers would not take us seriously as buyers if we still had to sell our existing property before committing to the purchase of a new place.

I imagine that we're not the first people to be in this situation and I was wondering what other people normally do?

I was wondering if a mortgage lender would let us do something like remove some of the equity from the current property (let's say - remove £59,000 - leaving £26,000 of equity, or 20%, in the existing place) and then use that £59,000 as a 16% deposit on the new place - which would let us proceed with the purchase of the new place when we see something that comes up. Once we have an accepted offer and have moved into the new place, we could then put the old place on the market, sell it, and recognise the remaining £26,000 of equity - which would be used to pay off some of the debt on the new property.

The only downside that I can see to this plan is that we'd have to pay the higher level of stamp duty (second home), but we would recoup this assuming we could sell within 2 years - so that's not too much of a problem.

I expect that our current flat will sell very quickly (on our street they usually do), so I am not particularly concerned about temporarily paying off 2 mortgages or being completely unable to shift the old place.

The other alternative is presumably to offer on a new place, but make the offer subject to selling the old place. If the offer is accepted then try to sell the old place very quickly. The problem with this, however, is that the market on the properties we're looking to move to are very competitive, so I question how seriously we'd be taken if we didn't have the money/mortgage ready to go at the point where we made an offer.

Any thoughts or advice on how to manage this would be appreciated.

kingstreet

This will only work if you remortgage the flat onto a BTL mortgage and let it. You can't use mortgages for short-term borrowing.

As with most situations, you need to sell before you can buy if you have no ambition to be a long-term landlord.

Typically, the BTL remortgage is going to need 20% to 25% of your equity left in-situ, so it's doubtful you'll be able to create a large enough deposit for the purchase by taking this option anyway.

cralol

That's disappointing to hear. I mean, we could move it onto a buy-to-let mortgage (if that would let us release some equity), but as we'd need to leave in enough for 60-70% LTV for a buy-to-let mortgage, it would restrict the amount of equity that we could release - probably to only £33,000 - £46,000 which would be shy of the £70,000 that we'd need for a 20% deposit on a new £350,000 property.

We do have £50-60k sitting in our ISAs that we could dip into if needed for the deposit on a new place, but the problem with using that for the deposit for the new place is that we'd end up with all of the equity from our current place sitting outside our ISA after the sale - so we'd end up either overpaying the mortgage on the new place (which seems pointless given the currently low rates of interest) or investing the money in a non-tax free investment.

What do most people do? Do most people actually put their current home on the market, wait until they have an offer, and then desperately try to find a new home before moving out of their current? That just seems too time prohibitive in terms of finding a decent new house...

Sagz_2

cralol wrote: »

What do most people do? Do most people actually put their current home on the market, wait until they have an offer, and then desperately try to find a new home before moving out of their current? That just seems too time prohibitive in terms of finding a decent new house...

That's exactly what most folks do. It works, but can be stressful.