Selling shared ownership and buying next property

MrsH07

Hello, I am very new to all of this and looking for some advice. We are looking into selling our shared ownership property (we own 40%) which I believe to be worth £88,000 based on the sale price of our neighbours property. We are looking at properties worth around £230,000. We will need to use equity from our current property to fund our mortgage deposit. After looking into this by research online, I am under the understanding that if we were to do this, the exchange deposit from the people buying our property would be approx £8800 (basing on 10%) but ours would be £23,000 (basing on 10%) which would mean a shortfall of a few thousand which if I am correct we would need to find the cash. The only solution I can think of for this is for us to sell our share , move into rented, and then purchase our next property as we will have gained some money on the sale of the house. Does this sound correct or have I missed something? 

eddddy

Usually, you would ask your seller to accept a smaller deposit at exchange - i.e. in this case, just the £8,800 which equates to 3.8%  But 3.8% is quite small.

The reason for the deposit is in case you exchange contracts, but then fail to complete. The contract will say that you forfeit 10% - at the very minimum.

If the solicitor is holding £23k - it's easy. The solicitor just gives the seller your £23k. If the solicitor is only holding £8.8k - the seller gets that, but then has to go to court to sue you for the remaining £14.2k - and maybe end up putting a charge on your current house, asking a court to order you to sell the house etc. Which is all a big hassle.

So to a great extent, it depends on how trusting your sellers are (and/or what advice their solicitor gives them).

MrsH07

Thankyou for your reply. I am thinking that if we sell our share first, move to rented, we would then have £40,000 not tied up in the property by the time we have paid off the remaining mortgage, which would be our deposit money. I did not want to move twice, but it would be a simpler way of doing things? Am I getting this right? We would also be in a better position for getting our mortgage agreed as the deposit wouldn't be tied up in property ? 

Nikkilou86

99% of property chains rely on the deposit from the bottom of the chain, very few people have the shortfall sitting in the bank.

We sold our previous house with around £110k equity, we chose to put £90k equity down on next house so we had money to cover fees and immediate works. In reality the £37,500 deposit from our buyer got passed up the chain, as not only our deposit but ours sellers new property valued at around £750k then on to the final piece of the chain which was a £450k vacant property. It’s an extra piece of paperwork saying everyone agrees but in reality without nobody would move as the majority of people’s deposit is tied in their equity once they are on the ladder. 

Speak to a mortgage advisor, find out what you can borrow and get the ball rolling - absolutely no need to rent in between unless you want too. 

Good luck with your plans. 

Tokmon

MrsH07 said:

Thankyou for your reply. I am thinking that if we sell our share first, move to rented, we would then have £40,000 not tied up in the property by the time we have paid off the remaining mortgage, which would be our deposit money. I did not want to move twice, but it would be a simpler way of doing things? Am I getting this right? We would also be in a better position for getting our mortgage agreed as the deposit wouldn't be tied up in property ? 

That would just end up making it far more costly for your and drawn out with the only benefit being you will be more attractive when putting in offers on new house. 

The deposit coming from equity or cash makes no difference to whether or not you would be accepted for a mortgage.

MrsH07

Thankyou, Yes I understand that renting is costly. The thing I can't see working is that our buyers will only be putting down a £8800 exchange deposit (based on 10%) because we are selling a 40% share of a shared ownership property. As we are hoping to buy a house on the open market our  exchange deposit will be much higher, meaning we would have to fund the remaining out of our own cash, as until completion the money is tied up in property. Our property will be start of the chain due to being shared ownership our buyers will certainly be first time buyers. So it will only be their exchange deposit to move up the chain. 

eddddy

MrsH07 said:

Thankyou, Yes I understand that renting is costly. The thing I can't see working is that our buyers will only be putting down a £8800 exchange deposit (based on 10%) because we are selling a 40% share of a shared ownership property. As we are hoping to buy a house on the open market our  exchange deposit will be much higher, meaning we would have to fund the remaining out of our own cash, as until completion the money is tied up in property. Our property will be start of the chain due to being shared ownership our buyers will certainly be first time buyers. So it will only be their exchange deposit to move up the chain. 

As I said above, a much simpler solution is to ask your seller (via your solicitor) to accept a 3.8% deposit i.e. £8,800

Maybe ask your solicitor to get agreement on that very early on, before you spend money on searches, mortgage application, survey etc.

It sounds like you're trying to solve a relatively simple problem (an £8800 deposit) by introducing a whole set of much more difficult problems (associated with renting a property).

FWIW, sellers often say they'll go into rented property to make things simpler, but when they actually investigate what that involves - the complexity, the risks, the cost - they change their minds.

MrsH07

Thank you very much and excuse my lack of knowledge!!! 

MrsH07

In reality, the chances of anybody accepting a 3.8% deposit instead of 10% though?