I am seeing an increasing number of clients engage me who wish to sell their current property and purchase another. Anytime you do this there will be many moving parts involved, and many aspects which if unaware, can catch you off guard. You have the following options when considering selling and buying;
· You can sell before you buy;
o You should ideally try get as long a settlement as possible, with the ability to bring it forward to meet the settlement of a purchase you make so you don’t have to move twice. You may still find you have a short gap between each settlement.
o You could also insert a clause in your contract to rent back the property you sold so you don’t have to move twice.
o You will have the benefit of knowing what sales proceeds you have to play with on the purchase to maximise the price you can pay.
· You can buy before you sell;
o You need to make sure you have consulted your agent so you know what a worst-case sale price would be, then apply that conservatism to the purchase price.
o You need to purchase with a long settlement to ensure you have sufficient time to sell and settle your sale property before the purchase settlement. Generally, three months minimum is needed, ideally four.
o This allows you to secure the property now, so you are not out of the market. Is riskier in the sense that you have a hard deadline which you need to have sold your property by to not miss your purchase settlement (although in this market it could be riskier to be out of the market after selling first if you cant find something to buy relatively quickly).
· You can bridge (meaning you settle on a purchase first, then sell within 12 months after);
o This is an expensive option as you are carrying your current mortgage and the new mortgage at a 5% interest rate (generally speaking), before its paid down to your “end” loan which is then at a normal interest rate.
o With bridging you borrow the whole purchase price and costs less any cash deposit you put down upfront. You need to make sure there is enough equity in your current property to support the bank securing 20% or 30% of the purchase price, plus purchase costs (the rest being secured on the purchase property), otherwise bridging may not work.
o Benefit is you don’t need to move twice and you have 12 months to sell your current property to pay down the debt to the loan balance you will then have on-going.
Written by Tom Morison