The answer to one of our most commonly asked questions by home owners, revealed.
Selling property is a process – and it isn’t always a straight forwards one at that!
Many people will encounter issues when it comes to moving property. One of the most common of these is due to other buyers and sellers in the property chain, but it can also be to do with financial circumstances, and other parties backing out of sales at the last moment.
However, one of the things that causes the vast majority of home owners – and one of the questions that we most commonly have to answer – is whether or not you have to sell your property prior to buying a new one. Is this really the case? And if so, are there any tips and tricks that are recommended by professionals?
Read on find out the answer to the question, “do you have to sell your home before buying a new one?” and more.
Do I Really Have to Sell my Home Before I Go Out and Buy a New One?
We have been asked this question so many times, that we think it’s best to just get straight to the point, and answer the question at hand.
Very simply, the answer is no. You do not have to sell your current home before you buy a new one. There is absolutely nothing out there that states you have to do this, and it’s certainly not a law in the UK. It’s just that many people don’t have the finances to buy a new property without selling the first one.
There are, however, risks to choosing not to sell your home before buying a new one. This leads us very nicely to our next commonly asked question on the subject, which is, “are there risks to buying a new property before selling your home?”.
This question differs entirely, and therefore has a completely different answer – and even then, the answer isn’t a straight yes or no. The answer very much depends on what you are like as an individual, and furthermore, what your attitude is towards taking risks.
Are There Any Reasons Why I Should Sell my Home Before Buying a New One?
Now we’re going to move on to look at whether there are any reasons why you should consider selling your home before buying a new one.
The answer is, yes, there certainly are a multitude of reasons as to why you should sell your property before buying a new one.
We are going to list these reasons below in more detail.
It Can Be Extremely Risky
As we mentioned above, choosing not to sell your home, and going ahead and buying a new one can be risky. As the person at risk in this situation, you need to sit down and review what your attitude is towards risk. Can you really afford to take one – financially and personally – or not?
If you’re a person who is afraid of taking risks, and prefers to keep things simple, then we would suggest that buying before selling is probably not a good idea for you.
In some cases, however, home owners will choose to keep and rent out their first home once they’ve bought a second, which can make the risk less so because of the potential for rental income.
If you have a mortgage – which we’re assuming you do – then in this scenario, your tenants would effectively be paying for your mortgage.
We also feel that we should warn you, that being a landlord doesn’t come with all of the benefits that it used to, and many have left the industry due to the legislations that the current UK government have put in place.
Think About How You’ll Go About Getting a New Mortgage
Presumably, if you had a mortgage – or have a mortgage – for your first property, then you are going to have to look to get one for your next property also.
This being said, if you do choose to keep your old home on whilst simultaneously buying a new property, you will have to be extremely selective about which mortgage lender you choose to approach for a loan on your new house. The good news, however, is that the vast majority of UK lenders will understand the process that accompanies second, and even third, properties.
If you are going to go ahead with renting out your old home, then you will have to request your mortgage is converted to a “buy – to – let” product. If you don’t do this and choose to let it out anyway, it’s likely that you’ll run into some trouble with this mortgage lender.
However, in some scenarios, mortgage lenders will actually allow you to do this – but you must write and request permission to do so. In doing this, your lender might instead adjust your rate of interest, or charge an administration fee.
Remember that in buying a new house without selling your current one, you now become accountable for the payment of two mortgages – even in a scenario where you’re renting out the property but it’s currently void.
Of course, this adds in some risk. We would advise checking what rental demand is like in the local area before taking the leap. The higher demand, the lower your risk becomes, and vice versa.
Remember if the demand is low and the property is void of tenants, you still have to find the money to pay for both.
Not All Tenants Are Good
Remember that in choosing to rent out your property, you run the risk of acquiring bad tenants.
Bad tenants are inconvenient at best. They’re likely to do things such as fail to pay their rent. In them doing this, you as a landlord might find yourself having to actually evict the tenants from the property, and then having to pay both of the mortgages anyway.
In some cases, tenants may even trash the property, which will of course add maintenance costs onto your bill.
Are There Reasons Why I Shouldn’t Sell my Home Before Buying a New One?
There are positives and negatives to every choice you make, and that’s a given. With that in mind, it’s only fair that we also cover the reasons why not selling your home prior to buying a new one could be a good idea.
In some cases, people find themselves pushed into these circumstances. Say for example you can’t sell your old home for as much as you owe for it, and you’re in negative equity.
Read on to find out the reasons why not selling your home before buying a new one could be beneficial.
It Provides You with a Secondary Income
If you do choose to rent out your old home, this means you’ll acquire a secondary income. Do be careful, however, as the perks of being a landlord aren’t what they used to be.
The section twenty – four legislation has made it difficult for landlords to claim back on tax, and to treat their transactions as business – like. Be sure to do your research on this prior to making a decision, as you’ll wat to ensure you’re doing something worth doing.
For example, in the UK, as a landlord, you cannot deduct any interest paid on loans.
It’s a Future Pension Asset for You
You hear a lot about people renting out property to create a “nest egg” for when they retire. This is certainly a perk to keeping your old property on as a rental.
We don’t literally mean the transferral of money to your pension. What we do mean, is when you retire, you will continue to have the income from renting out your property, meaning you can relax a little about money, and simply enjoy your years of retirement.
Think of all the lovely holidays and weekend breaks you could go on…
You’re Immediately in a Stronger Position to Buy
Last of all, but by no means least, choosing to buy property when you’re not selling your own property in order to afford it immediately puts you in a stronger position to purchase!
The main reason for this, is because it entirely eliminates the chance of you being in a property chain – which we mentioned can be one of the prime causes of sales falling through. Sellers love cash buyers, and buyers who can afford to pay without having to rely on the same of their old home, so they’re likely to give you some preferential treatment. You’ll be making their life easier, after all.
This, in turn, puts you in a better position for negotiating the price of your new home.
We hope that today, we’ve helped you to better understand the pros and cons of not selling your property before buying a new one, and how it’s usually dependent on your personal circumstances. After all, we all view risk differently.
Thanks for reading!