buying new house before sell current one?

Melody2010

Hi, I wonder if anyone can advise me, I'm not very mortgage savvy having only owned one home and coming from a family which always lived in council houses!

Me and my partner have overpaid our mortgage over the years and now own our house outright. I've had it valued at around £185k and it's in an area where properties are selling very quickly at the moment.

We're looking to move to somewhere a bit quieter and with a bigger garden. I've seen somewhere I love for £280k. My husband's income is such that I don't think we'd have any problem getting a mortgage for the extra cost of the new house, to pay off over 15 years (we're in our late 40s).

In order to make us more attractive as buyers, and to reduce the stress of rushing to buy and sell at the same time, I was wondering whether I could borrow about £100k from a relative who has it (a very unusual situation I know, but due to an inheritance) to use as a deposit on the new house. Is that allowed? We would then ask for a mortgage of about £180k (about 65% LtV I think). When we sell our current home, we would pay back the relative straight away (i.e. it would be a short term loan, for 3-6 months while we sell the house), then use the rest to reduce the mortgage to £100k, as originally planned. I realise there would be early repayment fees if we do this.

Any thoughts very gratefully received! This all seems logical to me but I have no idea if it's allowed or if there are consequences of temporarily owning two properties.

Thanks, Mel

Thrugelmir

You'd be liable to second home stamp duty though this would be repaid once property 1 is sold. Providing within 3 years.

You won't be able to remortgage the second property for a period of at least 6 months after purchasing it.

If properties are selling quickly in your locality. Why not simply market it. Far easier to sell and buy concurrently.

Owning 2 houses will incur additional costs. Might as well save the money.

Lilla_D

Lenders don't accept borrowed money as deposit, so unless the relative gifted you the £100k and was willing to sign a letter to this effect, their money wouldn't be accepted. In addition, some lenders only accept gifts from close family members, i.e. parents, children or siblings. If you did intend to repay the relative, then all the above would be a lie, which is effectively mortgage fraud

Just to note, it is possible to remortgage within 6 months of buying the new property, but your lender options will be seriously limited and the potential lenders may not be suitable for one reason or another.

However, as you don't have to remortgage, it's not really a problem in your case. Paying the early repayment charge is something to consider, as you pointed out, so it may be worth taking a deal with low or no ERC.

Based on the above, I would agree that if properties are selling in your area, it'd be worth selling and buying parallel and just make it clear to all parties that the two transactions will have to complete at the same time.

Melody2010

Thanks both of you, that's really helpful. I didn't realise that lenders don't accept borrowed money as a deposit, good to know. It's a parent who would be lending us the money. Would it make any difference that it's a short term loan to be repaid on the sale of our house, which we own outright?

Will arrange to start the process of putting our house on the market today and see how we get on. It may be that I'm over-stressing about getting the house in pristine condition to sell - it's not a mess by any means but could do with some sorting which I don't currently have time for. Perhaps the extra value we might lose by not having it in tip top condition won't be any more than the additional costs we'd incur by buying first then selling at leisure?

Thanks again

kingstreet

Lilla_D wrote: »

Lenders don't accept borrowed money as deposit

I can think of a couple which will.

They permit a second charge to be taken with any regular repayments having to meet affordability, as you would expect.

Lilla_D

Hi Kingstreet,

Please consider my comment in the context: I was answering OP's question re borrowing from a relative. Having said that, I could have also referred to borrowing on a personal loan or a credit card.

Yes, borrowing against a property (BTL or first/second charge on resi home) that the client owns is acceptable, but that is not a relevant scenario here. OP can't take a second charge on a property that she sold in order to buy their new home...

kingstreet

I was wondering whether I could borrow about £100k from a relative who has it (a very unusual situation I know, but due to an inheritance) to use as a deposit on the new house. Is that allowed?

I was answering based on the above.

I've done similar cases with a couple of lenders. Both are large/high street. The relative was permitted a second charge over the property on which they lent the deposit with the deposit repaid from future sale proceeds.

Lilla_D

Hi Melody2010,

We've just had a PM chat with Kingstreet and also with one of the lenders and concluded the following:

- one lender accepts a gift from a family member even if this family member puts a second charge on the new property, which basically means that when you sell the new home, you'd repay your father as per Kingstreet's last message. They don't accept the scenario where you'd repay your father when you sell your current home.
- one lender can accept a loan from your father, with all the circumstances and details disclosed, which then an underwriter would consider and approve at their discretion. This is as per your original proposition, but you'd be restricted to this one lender.

Of course, we can't advise you on this forum and you'll still have to discuss all your circumstances with a broker, so all the above is just for information.

fewcloudy

Lilla_D wrote: »

Hi Melody2010,

We've just had a PM chat with Kingstreet and also with one of the lenders and concluded the following:

- one lender accepts a gift from a family member even if this family member puts a second charge on the new property, which basically means that when you sell the new home, you'd repay your father as per Kingstreet's last message. They don't accept the scenario where you'd repay your father when you sell your current home.
- one lender can accept a loan from your father, with all the circumstances and details disclosed, which then an underwriter would consider and approve at their discretion. This is as per your original proposition, but you'd be restricted to this one lender.

Of course, we can't advise you on this forum and you'll still have to discuss all your circumstances with a broker, so all the above is just for information.

Perhaps you should edit your initial reply to start the first sentence with "Most"...


fc

Melody2010

Thanks again everyone for all your helpful info, I really appreciate it.

Melody2010

Another thought, is it possible to use the fact that our current house is mortgage-free to get a mortgage on the new one?

So, if we try to sell and buy at the same time we'll lose the house I want because there are already some proceedable offers. The market seems a bit bananas here ATM.

On a joint income of only 50k, but owning an unencumbered property worth 185k and having savings of about 100k, can we put ourselves in a proceedable position on a house going for 310k? And put the current house on the market if successful?

Apologies if this is a massively stupid question.

Thank you