How will I know when I can move up the property ladder?

1122abc

I purchased a flat in London at around £590k a year ago, with a £87k deposit, so the mortgage is just over £500k. It is a share of freehold flat in a converted Victorian semi with one other flat. 

I have been reading on Google but I can’t quite understand in simple terms when I can move “up” the ladder. I’d really prefer to live in a house and slightly outside of London. 

If the property can be sold for £600k for example, am I right in understanding the £10k profit be mine entirely (not including legal and selling fees)? Will it appear in my bank account upon completion and I can therefore use it towards the deposit for the second property? I understand that the mortgage debt will be transferred to the second property purchase. 

I have depleted my savings with the sale. Will I have to save up 10% of the next property price or will some of that come from the “equity” (if I’ve used the word correctly) from my current property. My joint household income will be £140k next year which means that I can get a mortgage for £588k (4.2x as this is what we currently have). Am I right in understanding that this means I could borrow 88k more than my current mortgage? We’re looking at houses around the £700-800k region (ideally, but I know it’s unlikely). 

Lastly, how do I know the price of my home? Many online estimators don’t work because of the property type. Will I need to invite EAs over from time to time to see wha they think?

AFF8879

Why do you want to move already after only being in your flat for a year? 

You don’t need to “re save” the 10% as it will come from whoever buys your flat and get passed up the chain. You will however need to find 10% of the difference between your current flat and onward purchase.

For example; if you buy a house for £800k, you’ll need £80k deposit at exchange- of which £60k will come from your buyer (assuming you sell for £600k) and £20k you’ll need to come up with separately. Plus SDLT will be due (approx another £50k). So in this example you’ll need ideally £80k roughly saved separately to cover deposit, SDLT, legal fees etc. 

Moving house is very costly which is why it’s generally advised to stay put somewhere at least 5 years when buying (hence my first question).

julicorn

If you sell for £600k, and the mortgage is £500k, you have £100k equity in the property. If you were to sell without buying elsewhere, then yes, that £100k would be paid out to you (minus solicitor and estate agent fees of course). 
When moving to another property, that £100k equity can form part of your deposit. 

Is there a reason why you think you can only borrow 4.2x your income? That seems like quite a low multiplier - do you have significant debts and other commitments? Just asking because 4.5x is pretty common, and at higher incomes 5x is usually pretty doable (again, don't know your situation of course). 

TBagpuss

1122abc said:

I purchased a flat in London at around £590k a year ago, with a £87k deposit, so the mortgage is just over £500k. It is a share of freehold flat in a converted Victorian semi with one other flat. 

I have been reading on Google but I can’t quite understand in simple terms when I can move “up” the ladder. I’d really prefer to live in a house and slightly outside of London. 

If the property can be sold for £600k for example, am I right in understanding the £10k profit be mine entirely (not including legal and selling fees)? Will it appear in my bank account upon completion and I can therefore use it towards the deposit for the second property? I understand that the mortgage debt will be transferred to the second property purchase. 

I have depleted my savings with the sale. Will I have to save up 10% of the next property price or will some of that come from the “equity” (if I’ve used the word correctly) from my current property. My joint household income will be £140k next year which means that I can get a mortgage for £588k (4.2x as this is what we currently have). Am I right in understanding that this means I could borrow 88k more than my current mortgage? We’re looking at houses around the £700-800k region (ideally, but I know it’s unlikely). 

Lastly, how do I know the price of my home? Many online estimators don’t work because of the property type. Will I need to invite EAs over from time to time to see wha they think?

If you sold the property then (if you didn't immediately buy) you would pay back the mortgage and the rst (after legal and estate agents costs) would be yours. As a 'back of an envelope' estimate assume the legals and agents will be around 1.5% - 2% of the sale price.

So in your case,
 if you were to sell for £600,000, the figures might be 

Sale Price                          £600,000
less: Mortgage                  (£500,000)
less: costs of sale @ 2%   (£ 12,000)
Net Equity                         £   88,000    

So in that example, you've made about £10,000 but it will cost you a similar amount in sale and other costs, so you'd get back a similar amount to your original deposit.  If you have early redemption charges on your mortgage you would have to take those into account as well, unless you were able to 'port' the mortgage to your new property.


On the other hand, if your flat was now worth £620,000 then the numbers would be closer to 

Sale Price                          £620,000
less: Mortgage                  (£500,000) (but don't forget to add on any early redemption Charges) 
less: costs of sale @ 2%   (£ 12,400)
Net Equity                         £107,600    

So you would have £107,000 to use as a deposit on your new property.

In most cases when someone moves house, the sale and new purchase happen at the same time, so the £107K (or £88k) wouldn't ever go into your bank account, it would go from your buyer's solicitor to your solicitor to the solicitors acting for the person you were buying from.

If you are buying a property worth more than you are selling, you may need some savings as the deposit your buyer would pay you would normally be 10% - so if you sell for £620,000 he buyer's deposit would be £62,000, but you would need £80,000 as a deposit if you were buying for £800,000, so you would need to be able to fund the £18,000 difference from savings. Sometimes it can be agreed that you don't actually hand over the full 10% on exchange , which allows people to move without having extra savings on top of the equity in their house .

Knowing the price of your current home - one good starting point is to look at similar properties which are currently on the market, so browse Rightmove /zoopla and see what the asking prices are for properties similar to yours, in your area. You can also look at sold prices on those sites, although be aware that those are based on the Land Registry records so there is a time lag before they appear (i,e, for sold prices you are normally looking at the prices properties were selling for several months ago) 

You can get agents round to value your property but normally you'd do that when you had already some your own research, so at the point where you think you have n idea of what your property is likely to be worth, you've looed into your borrowing capacity and looked at the listings for houses that might be suitable - i.e where you are ready to look at putting your flat on the market unless the agents figures are wildly different to what you were expecting. 

You say 'we' - if you have a partner then it's reasonable to look at what your combined mortgage capacity is likely to be and what the monthly costs might be, so you can consider what you can realistically afford and whether it's feasible to move .  If you would be buying alone then again, look at some of the 'how much can I borrow' calculators - most banks have them, to get a feel for how much they would lend.
Most ill ask you about your depoist and the value of the property you hope to buy, and the numbers may be different is you are saying you would be looking to borrow £700,000 against an £800,000 house compared with borrowing £600,000 against a £700,000 house, as the risk to them is different