Purchasing new property before selling current

Pepper08

My partner and I are looking for our next home, a bigger property in a different area of UK (South West).

Unfortunately we have not yet managed to sell our flat (very slow traction on housing market despite price reductions). If I reduce it further I am unlikely to have made any money from its original purchase price 8 years ago!

We are in the fortunate position to have healthy savings (S&S ISAs, premium bonds) and could use these for a deposit on our next home (however this would then be depleted completely…)

Do we stop looking until the flat has sold (who knows how long that would take, it certainly appears to be a buyers market at the moment!)? Do we empty everything we have if we see the perfect place and just hope the flat sells and we can replenish ISAs/Premium Bonds? Do I reduce the flat further and make a loss to keep savings where they are?

Any advice is much appreciated!

Bookworm225

buy before selling means your purchase will incur higher rate SDLT - which you can then reclaim when you sell the "old" flat as that was your (then) main home so meets the conditions for a refund on sale - provided that the sale completes within 3 years of the completion date of the purchase.


move out and starting living in the new places means the old place has 9 months in which to complete its sale or it will start to incur CGT when you do sell it. 
CGT is selling price - original purchase price = gain 
taxable gain = gain - private residence relief (gain x number of months lived in as main home + 9 "final" months (if applic) / total number of months owned)

eddddy

Pepper08 said:

We are in the fortunate position to have healthy savings (S&S ISAs, premium bonds) and could use these for a deposit on our next home (however this would then be depleted completely…)

If you want to buy a new home, before you sell your current one...

• It sounds like you plan to buy with a mortgage.

• Do you have a mortgage on your current property?

If you do, the new lender will want to check your affordability, to make sure you can afford to pay 2 mortgages at the same time.

And a 'standard' residential mortgage should really be for your main residence. You can't really have 2 main residences.


Also...

Pepper08 said:

Do I reduce the flat further and make a loss...

Might that take you into negative equity? If so, you'd need to find an extra chunk of money to pay off your mortgage when your current flat sells.

(You might find it difficult to find the money, if you've sunk all your savings into buying the new place.)

singhini

As mentioned by Bookworm225   "buy before selling means your purchase will incur higher rate SDLT"
Don't underestimate how significant this could be to your cashflow 

Example: if you sold first and then bought (lets say) a £300,000 house, the SDLT would be £5,000. However if you buy before you sold the SDLT would be £20,000
Even though you potentially could claim the £15,000 difference back, laying out £20k needs to be considered. 

twopenny

A friend of mine did this because of health needs and had substantial savings so was confident.
It took a year for the original property to sell and he spent savings and had to borrow from a friend come the end. 
Cost of getting the new property fixed with unexpected problems.

It all balanced out in the end but he was very stressed for a long time and had to take a large reduction on the original property's price.

Bigphil1474

Selling for less than you bought 8 years ago isn't necessarily taking a loss - you've lived there for 8 years, so have financially enjoyed that 8 years of residency . If it was me, so long as the mortgage was paid off and I had enough for my onward purchase, what I bought for 8 years ago would be irrelevant. 

Flugelhorn

I have done a few times  it but only really works if you either own current property outright or can by the next one for cash.  Paying 2 mortgages plus double council tax, 2 lots of utility bills and 2 mortgages might just be a bit of dent in the finances. 

also bear in mind having to travel back regularly to old property to check on it (not so bad with a flat) - insurance policies usually want the empty property checked on (in some cases weekly) 

housebuyer143

I did this out of necessity and our house was mortgage free so our new property we took with a very large mortgage. It took about a year to sell the other place after numerous fall throughs and it did get very stressful because you still have to pay council tax, gas electric on the place you're not living in as well as insurance and having to go back and check it. Plus the very large mortgage costs on the new place assuming you max out. 

I don't regret doing it because I would have lost the house I live in now and I love it here but it was very stressful for a long time.

saajan_12

Pepper08 said:

Unfortunately we have not yet managed to sell our flat (very slow traction on housing market despite price reductions). If I reduce it further I am unlikely to have made any money from its original purchase price 8 years ago!

This is a common fallacy. If the property currently won't sell for more than the purchase price, then the loss has already been made. The price you paid isn't relevant anymore. The flat is only worth what someone will pay for it now, so if its not selling, the value is lower than you're advertising at. By holding on to it, you're hoping that prices will increase in the future but in the absence of a known temporary issue (eg cladding cert), or a crystal ball on house prices, you don't know, could be waiting for nothing. 

Pepper08 said:

We are in the fortunate position to have healthy savings (S&S ISAs, premium bonds) and could use these for a deposit on our next home (however this would then be depleted completely…)
.....
Do we empty everything we have if we see the perfect place and just hope the flat sells and we can replenish ISAs/Premium Bonds? 

Buying first and running two houses is expensive:
* SDLT on purchase at higher rate (+5%) on the bigger house. If the flat is that hard to sell, there's a risk you don't complete within the 3 years and never get the extra 5% back. If it does, then you've still lost the interest on what could be a substantial sum. 
* Interest paid on flat mortgage (could be at higher BTL rates as the lenders may not approve you for two residential mortgages)
* Interest lost in the ISA / premium bonds as its tied up in equity in two properties
* Council tax on an empty property (can be double the usual rate)
* Extra set of utilities standing charges

If its taking long to sell the flat, those monthly costs could continue for a long time, and could exceed the higher price you may or may not get on the flat. 

housebuyer143

* SDLT on purchase at higher rate (+5%) on the bigger house. If the flat is that hard to sell, there's a risk you don't complete within the 3 years and never get the extra 5% back. If it does, then you've still lost the interest on what could be a substantial sum. 

Just to mention, you actually get paid interest on the additional stamp duty if it's returned to you. So you don't lose out on it if you are able to reclaim. The rate I got was surprisingly generous.

poseidon1

housebuyer143 said:

* SDLT on purchase at higher rate (+5%) on the bigger house. If the flat is that hard to sell, there's a risk you don't complete within the 3 years and never get the extra 5% back. If it does, then you've still lost the interest on what could be a substantial sum. 

Just to mention, you actually get paid interest on the additional stamp duty if it's returned to you. So you don't lose out on it if you are able to reclaim. The rate I got was surprisingly generous.

It peaked at 4.25% in 2023, now sits at 3.25%. Still not bad, since the interest is tax free.