Downsizing plan: buy first, sell a year later, then clear mortgage – any pitfalls?

Soulgreen

Hi, we’re looking for a bit of reassurance that our plan sounds sensible, and whether we’ve overlooked anything!

As part of our retirement plans, we’re intending to downsize to an apartment in the countryside. Rather than moving there immediately, we’d like to buy the new place first and use it as a part-time holiday home for around a year before making the full move.

To do this, we’d use the proceeds from the sale of a rental property that’s currently going through, plus borrow an additional c.£100k against our existing home. We only have around £15k left on our current mortgage and approximately £380k of equity in the house.

The plan would be to take out a tracker mortgage over around 20 years, as this appears to give us the flexibility to repay it early without any early repayment charges. We’ve already obtained an AIP and can comfortably afford the increased monthly payments during this transition period.

When we’re ready to relocate fully, we’d then sell our current home and repay the mortgage in full.

Does this sound like a workable approach? My partner’s main concern is whether our lender (Barclays) could still hit us with any unexpected fees or charges when we come to repay the additional borrowing only a year or so after taking it out.

Have we overlooked anything, or does this all sound reasonably straightforward?

Thanks in advance for any thoughts or experiences.

GDB2222

5% extra SDLT when you buy the new place, although you can reclaim that as long as you sell your current home within 3 years. That does put you under some pressure to sell.

You'd need to check the mortgage offer very carefully, as there can be early redemption fees.

Any CGT on the rental property has to be paid within 60 days of the sale. If you are married, have you split the value of the rental property between you so as to minimise CGT, yet?

clairec666

In addition to what GDB2222 said about SDLT, is your current home likely to sell fairly quickly? I.e. is it a "normal" property in decent condition in a fairly popular area, and not a quirky property that may take time to find the right buyer? Even if you manage to find a buyer quickly, you may not have control over whether it completes within 3 years.

Soulgreen

Hi there, thanks for the quick reply! And for checking that we already knew about the stamp duty - that’s one of the reasons we’d probably make the move after a year, give us (hopefully!) a good amount of time to complete a sale within that 3 year period.

Would Barclays really hide any fees deeply in their T&Cs? Perhaps I’m being a bit naive but I’d hoped that if it says pretty clearly that there are no early repayment fees, that they wouldn’t be sneaky about hiding them in the small print. (But we will have a very thorough check anyway!)

Rental property is only in my name, so I’m guessing that means I can’t split the capital gains allowance with my husband? TBH I haven’t made a huge amount on it so the CGT will only be £1.5k or so after everything else has been taken into consideration.

Soulgreen

Good point @clairec666 - one never knows for sure, of course. But we live in a popular central city location, and our house is in great condition and nicely decorated (new kitchen and bathrooms within last 5 years). So we’re optimistic! But as I’ve replied to @GDB2222 above, that’s one of the reasons we’d probably will probably only stay here another year after buying the new place. We could make the move sooner, after 6 months. Maybe a good plan is to pop our house on the market after 6 months, and see what happens! If it takes 6 months to find a buyer, that’s fine. If it sells quickly, we speed up our plans! :-)

sheramber

Possible second home council tax.

poseidon1

All Barclays trackers have a minimum £1,000 product fee.

In view of your specific plans may be worth looking at their Great Escape 2 year fixed with no product fees. Yes there is a redemption penalty within 2 years but being tied in another year before paying off could just work for your objectives.

born_again

How close to retirement given the mention of "plan would be to take out a tracker mortgage over around 20 years" As many lenders do not go above 70.

clairec666

https://forums.moneysavingexpert.com/discussion/comment/82042721#Comment_82042721

If you can make it work, it sounds like a good plan, being able to move gradually without the stress of being in a chain.

Good luck 😊

mta999

it would be wise to have a plan for what happens if your house does not sell

Soulgreen

Thanks everyone!

Good point @sheramber - will definitely check that out!! Hadn't thought about that (you've all been so helpful).