Buying before selling - mortgage implications?

Snuggles

For various reasons, we are considering whether it would be viable to buy a new home before selling our current home. The idea would be to buy and move in to a new property, then market and sell the old property.

Our current property is mortgage free and we have no other debt.

If we wanted to obtain a mortgage to purchase a new property would we be restricted in any way due to already owning a (mortgage free) home? I have seen there are specific mortgage products for second homes, but am I right in thinking that's for when you have a mortgage on the first property, and you want to take out a second additional mortgage?

I'm asking because I noticed those second home mortgage products require a large deposit. As we would have to pay second home SDLT (and reclaim it after selling the old property) we would only have a deposit of 10%. Once the old property sold we would look to remortgage at the earliest opportunity, after paying off a large chunk from the sale proceeds.

Obviously the ongoing monthly costs of both properties would be taken into account for affordability, but other than that does already owning a mortgage free property have any relevance to applying for a mortgage to buy another property?

getmore4less

The biggest hit on the mortgage will be only 10% deposit that will mean a higher rate and payment with longer initial term an option to get it down.


if keeping the timescales short you would be looking at a ERC free option maybe a track and switch
depending on the numbers and lender there maybe a fee both times


if you can set up the finances to manage a buy then sell then you have the option to find somewhere an market immediately at competitive price to get  back to a buy and sell vey close together or even together 

waiting till you have moved could leave you a 3+ months  gap overlapping should reduce that to weeks or even zero.

[Deleted User]

2nd home loans are for 2nd residential property purchases.  Having a mortgage on the first property doesnt make a difference.

The lender will be a bit tighter on affordability as there will be 2 lots of bills for everything.

A lot of lenders will restrict to 75% ltv but there are options across the range and 1 lender allows it at 90%

Snuggles

Deleted_User said:

2nd home loans are for 2nd residential property purchases.  Having a mortgage on the first property doesnt make a difference.

The lender will be a bit tighter on affordability as there will be 2 lots of bills for everything.

A lot of lenders will restrict to 75% ltv but there are options across the range and 1 lender allows it at 90%

Ah thanks, so we would be restricted to those types of products - that probably makes it unviable then, certainly at the moment. What's the rationale for it? It makes sense that you'd be considered a greater risk by the lender if you already had a mortgage, but if you are mortgage free, why is it relevant to them that you already own a residential property (other than affordability)? I must be missing something...

Snuggles

getmore4less said:

The biggest hit on the mortgage will be only 10% deposit that will mean a higher rate and payment with longer initial term an option to get it down.


if keeping the timescales short you would be looking at a ERC free option maybe a track and switch
depending on the numbers and lender there maybe a fee both times


if you can set up the finances to manage a buy then sell then you have the option to find somewhere an market immediately at competitive price to get  back to a buy and sell vey close together or even together 

waiting till you have moved could leave you a 3+ months  gap overlapping should reduce that to weeks or even zero.

Thanks for the suggestion but that wouldn't work in our case. The reason we were considering buying first is because our current property is shared equity with a housing association. In this area they don't sell as quickly as "normal" houses, and neighbours who have sold have had a bumpy ride to get to completion, including sales falling through for one reason or another, and the process just taking much longer than usual due to the HA being involved etc.

So if you get an offer and it progresses, you absolutely wouldn't want to lose the buyer. However we have some specific requirements for  a new property and it might take a while for us to find what we're looking for. We would happily go into rented to keep a buyer, but the problem with that is we have cats, and it seems almost impossible to find landlords willing to accept this.

We know that buying first would be an expensive way of doing things but we are in a fortunate position financially as circumstances have changed dramatically since I bought the shared equity property when I was single.

Anyway, based on what @Deleted_User has said, it seems as though a 10% deposit is unlikely to be enough, so it's probably not viable anyway just at the moment as I wouldn't want to have to use all our savings to fund the deposit, SDLT and all the other costs, especially as we don't know how long it would take to sell our current property. We could easily afford the monthly costs to keep two properties but I still wouldn't be comfortable doing it without a decent buffer.

I guess we'll just have to market the property and see what happens - we might strike it lucky. Just based on how it's gone with  neighbours' previous sales, the chances of everything aligning at the right time seem low, especially as there's not a massive amount on the market at the moment for our onward move.

[Deleted User]

10% deposit is fine for a 2nd home with a high street lender.

The rational for wanting higher deposits is to discourage people doing then when they dont have enough deposit for a buy to let mortgage. 

You could remortgage your place to release equity to increase deposit on new place

Snuggles

Deleted_User said:

10% deposit is fine for a 2nd home with a high street lender.

The rational for wanting higher deposits is to discourage people doing then when they dont have enough deposit for a buy to let mortgage. 

You could remortgage your place to release equity to increase deposit on new place

Thank you, that makes sense about BTL. 

I hadn't considered that - I had assumed it would be disadvantageous applying for a new mortgage on a new property if we already had an existing mortgage, but I guess it all just comes down to affordability. Food for thought.

getmore4less

Drip feeding relevant information won't help getting relevant replies.

Snuggles

getmore4less said:

Drip feeding relevant information won't help getting relevant replies.

I asked a very specific question in my OP about second home mortgages, and I've received the answer to that question. That's all I was looking for, and I provided enough info for that question to be answered.

Thank you for your input though, it was appreciated.