Second time buyers - how to use equity to buy next house

Damago

Hello,
Me and my partner bought our first house 5 years ago. We want to move in the next year or so and I am trying to understand how we would use equity in our current house to buy our next home, and how much we would need to save on top of that. We will be selling our current house at the same time, and if we were to sell at the moment we would have around £100k in equity.

Our next property will be considerably more expensive than our current property - when selling I presume we also need to save a considerable amount to cover solicitors fees, moving costs etc, as well as stamp duty. If we were able to save all of that, would the £100k equity count towards the next property as a £100k deposit (meaning we wouldnt have to have 'cash' deposit too)?
Could we also use some of the equity as stamp duty (ie £20k stamp duty + £80k equity)?

I've tried searching forums already but keep getting results about people buying additional properties, rather than selling their first home and using equity for the next.
Thanks

SMR710

Exactly same situation as we are in so I'll explain it how I understand it.
We bought ours in 2011 for £145k. Mortgage is £118k now and we've had it valued at £220 to 230k making an apprix £100k profit once the mortgage is paid off upin sale (and of course based on a sale price of £220ish)
We are moving to a house that we have reserved for £334k.
Separate savings will cover the fees such as solicitors, stamp duty etc. The money we get out of the sale (ie the £100k) will go as deposit towards the new house. We need the full £100k to get a better ratio on the LTV but if the new house was cheaper then we may have kept say £20k of the £100k equity back. On a mortgage application you will need to state that your deposit is funded through equity up in sale of existing property.
Hope this helps?

eddddy

Damago wrote: »

If we were able to save all of that, would the £100k equity count towards the next property as a £100k deposit (meaning we wouldnt have to have 'cash' deposit too)?

That's correct.

Damago wrote: »

Could we also use some of the equity as stamp duty (ie £20k stamp duty + £80k equity)?

That's correct too.


But if you're 'up-sizing', it seems you have no cash saved, so you can only do that by taking out a bigger mortgage.


(I guess if I was judgemental, I could add... if you haven't been able to save-up any cash whilst paying your current mortgage, how will you afford to pay for the new bigger mortgage?

But I'm not your mother and so that's not really any of my business!).

saajan_12

Damago wrote: »

Hello,
Me and my partner bought our first house 5 years ago. We want to move in the next year or so and I am trying to understand how we would use equity in our current house to buy our next home, and how much we would need to save on top of that. We will be selling our current house at the same time, and if we were to sell at the moment we would have around £100k in equity.

Our next property will be considerably more expensive than our current property - when selling I presume we also need to save a considerable amount to cover solicitors fees, moving costs etc, as well as stamp duty. If we were able to save all of that, would the £100k equity count towards the next property as a £100k deposit (meaning we wouldnt have to have 'cash' deposit too)?
Could we also use some of the equity as stamp duty (ie £20k stamp duty + £80k equity)?

I've tried searching forums already but keep getting results about people buying additional properties, rather than selling their first home and using equity for the next.
Thanks

Example figures but please amend for the actuals:
Current property value £400k, mortgage 300k
New purchase price 600k, mortgage 520k

Upon exchange, you have to pay an exchange deposit typically 10% (60k) of purchase price, which you lose if you pull out later. But you can use the 40k from your buyer and 'pass it up the chain' - it's all handled by the solicitors. You can then either negotiate a reduced exchange deposit with your seller (ie they accept the 40k = 6.66% upon exchange and if you default you're still liable for the remaining 20k) or if they refuse then you'd have to top up the 20k in cash.

Costs prior to completion:
- 40k deposit for bought property (assuming the seller agrees)
+ 40k deposit for sold property
- 1k solicitors down payment
- 2k mortgage / valuation fee
- 2k removals van booking

---

Net 5k to pay

Upon completion, you typically pay / receive:
- 560k New purchase cost less 40k deposit
+ 360k Sale proceeds less 40k deposit
- 300k Pay off current mortgage
- 20k Stamp duty
- 2k Solicitors bill
- 6k EA fees (assuming 1.25% +vat on 400k)

---

Net 528k to pay - from your new mortgage. If you can save any of this in cash then you can reduce the new mortgage.

Damago

Thanks all for your replies, so as I understand it - it can be done, but it is better to save as much cash as possible to put down rather than solely relying on equity.

Upon exchange, you have to pay an exchange deposit typically 10% (60k) of purchase price, which you lose if you pull out later. But you can use the 40k from your buyer and 'pass it up the chain' - it's all handled by the solicitors. You can then either negotiate a reduced exchange deposit with your seller (ie they accept the 40k = 6.66% upon exchange and if you default you're still liable for the remaining 20k) or if they refuse then you'd have to top up the 20k in cash.

Does this mean the deposit can't be taken from equity, rather than passing to the buyer?

(I guess if I was judgemental, I could add... if you haven't been able to save-up any cash whilst paying your current mortgage, how will you afford to pay for the new bigger mortgage?

But I'm not your mother and so that's not really any of my business!).

As we've been spending on home improvements, new cars, quite a few holidays and a wedding, the plan is after the wedding is done, the money that we've been saving every month will then be for a new property instead, but I was hoping instead of spending another few years saving 25k+ towards the new deposit / stamp duty, that we could use our equity to fund that instead and move out sooner.

pinkteapot

Damago wrote: »

Does this mean the deposit can't be taken from equity, rather than passing to the buyer?

Deposit can't come from equity - you need to hand over the deposit on exchange, and the equity isn't available until completion.

As others have said, your buyer will be paying you a deposit. You can negotiate with your seller to accept less than 10% and just pass on the amount your buyer gives you.

If the seller flat out refuses, your options are to 'top up' your buyer's deposit with your own cash, to the 10%, or to do exchange and completion on the same day (but this has significant risks/downsides).

Thrugelmir

pinkteapot wrote: »

or to do exchange and completion on the same day (but this has significant risks/downsides).

Lender would need to be agreeable to this as well. Not all are.