Sell your house and move into rental - then buy new house - how does it work?

[Deleted User]

OK. Suppose we do this. I guess if the house is sold, the mortgage gets paid off and the rest of the money is given to you? (Luckily in our case it would be £300K left over). Is this how it works?

OK then suppose we rent - which would be ok since theres no mortgage to pay and I've now got £300K in the bank. 

Then we find a new house which may be slightly more than the £300K we've got. Does it then become a new mortgage I guess?

Is it that simple?

I guess getting an affordable rental is the problem here though. And being in my mid-50s, 8 years left on morgage I want to get on with paying it off.

Would there be an issue with capital gains tax or anything if you've now got £300K in your account? Even though its scheduled for a new house.

Jenniefour

Do you have a particular compelling reason to rent in between selling the house you're living in now and buying another? Most folks move straight from old house to new one. 

DullGreyGuy

Yes it is that simple and there is no capital gains on selling your main home. You'll potentially pay income tax on interest earned whilst it's sitting in the bank if it goes over the threshold.

Obviously most skip the rental stage and go straight from owning one home to the next.  

Flugelhorn

no issue with CGT - you just sell the house, put the money in the bank account and rent a place. Just try not to spend the money on anything else in the meantime

I agree with @Jenniefour not always great to have a gap - quite expensive as you may have to commit to rent for a year etc (if you can find somewhere). 

saajan_12

[Deleted User] said:

OK. Suppose we do this. I guess if the house is sold, the mortgage gets paid off and the rest of the money is given to you? (Luckily in our case it would be £300K left over). Is this how it works? - yes.

OK then suppose we rent - which would be ok since theres no mortgage to pay and I've now got £300K in the bank. - exactly, you could use the interest earned on the £300k plus the money that would have gone to a mortgage, towards rent instead. 

Then we find a new house which may be slightly more than the £300K we've got. Does it then become a new mortgage I guess? - yes, plus survey, solicitors, stamp duty etc costs. You apply for a mortgage for the shortfall. You may also need to time it if your rental has a minimum 6 / 12 month term, or suffer through an overlap of rent and mort. 

Is it that simple?

I guess getting an affordable rental is the problem here though. And being in my mid-50s, 8 years left on morgage I want to get on with paying it off.

Would there be an issue with capital gains tax or anything if you've now got £300K in your account? Even though its scheduled for a new house.- no, there's no CGT on your main home. Once converted to cash, the 300k is just money in the bank, not treated as a capital investment. I wouldn't recommend you invest it in the market for such a short timeframe. So you're left with an interest bearing savings account - you may pay income tax on any interest earned, depending on your band / allowances. 

Comments in line.. assuming you need to break the chain for a reason then yes it is simple conceptually. The difficulty comes when
- you have an extra set of moving costs
- if the market rises in the meantime so a comparable house is more expensive than when you sold
- overlaps in rent and mortgage due to the minimal rental period or because the parties in the chain have different date preferences 

[Deleted User]

Just know a friend who did this and they said it worked for them.

Ideally of course we would just do the standard house move. Just aware that this may take much longer. Want to get it all sorted in place so daughter can start in new high school in September.

DullGreyGuy

[Deleted User] said:

Just know a friend who did this and they said it worked for them.

Ideally of course we would just do the standard house move. Just aware that this may take much longer. Want to get it all sorted in place so daughter can start in new high school in September.

It can do and there are circumstances where it may be sensible such as if you are moving to a new area a long way away. Moving into rental gives you a chance to learn the area and makes viewings etc much more easy to do. Does increase the costs because of moving twice and no efficiency from the conveyancer but much cheaper than buying in the wrong area and then having to sell again. 

macman

There is no CGT on the sale of your main residence, whether you buy the next day or a year later. The only tax to be declared is on the interest from the £300k on deposit. So, at maybe 5%, around £15k pa.

shinytop

[Deleted User] said:

OK. Suppose we do this. I guess if the house is sold, the mortgage gets paid off and the rest of the money is given to you? (Luckily in our case it would be £300K left over). Is this how it works?

OK then suppose we rent - which would be ok since theres no mortgage to pay and I've now got £300K in the bank. 

Then we find a new house which may be slightly more than the £300K we've got. Does it then become a new mortgage I guess?

Is it that simple?

I guess getting an affordable rental is the problem here though. And being in my mid-50s, 8 years left on morgage I want to get on with paying it off.

Would there be an issue with capital gains tax or anything if you've now got £300K in your account? Even though its scheduled for a new house.

We did this, although no mortgage involved.  It certainly removes some of the stress and there are advantages to being a relatively chain free seller and buyer.  If you're not too fussy about where/what your rental is that helps.  We started looking, found and moved into the rental in a week. 

You do have two moves though...

staffie1

Just don’t hang about finding another property to buy - you could still be renting longer than you thought.

NameUnavailable

I did this because I had a buyer and wanted to sell - I then rented (actually lived with a friend) until I found a place I wanted to buy.

I focussed on looking for chain free property to buy, so that it would be relatively simple/quick and not waiting on someone else's chain to complete.

Obvioulsy if the home you want to buy is more than you have in funds you need another mortgage.