Buying a house before selling your current house
Should you buy a house before selling your current one or should you sell and then buy? We find out below…
Ideally, you want to put your house on the market and sell it in minutes, but that's different from reality.
Sometimes the market isn't quite in your favour, and it may take you quite a bit longer than you thought.
You might be understandably eager or have seen a property you are keen on purchasing, leaving you wondering, can you buy a house or have a bid accepted before selling your current property?
You can buy a property before selling, but it's a risk as you may be liable to extra taxes, and you run the risk of not being able to sell your first home.
If you accept or make an offer on a home, you may also risk being gazumped or gazundered, so you should weigh out which situation suits you best…
Can I buy a house before selling my own?
The simple answer is yes, you can. But, it requires you to take on additional debt, which causes additional risk — unless you can afford to do it with your funds.
You may also be asking whether you can bid on a house before selling your home; the answer to this, of course, is also yes. By doing this, you put a timeline on when you need to agree on a sale of your house.
There's quite a bit to it, though, and it could be more straightforward; there are pros and cons to buying before selling, just like there are for selling before buying.
Should I buy before selling?
You should only bid and start the buying process on another property if you are confident that yours will sell quickly.
The seller will likely not wait around to wait for your property to sell, which will cause them to become frustrated and seek other bidders. Many estate agents will only remove the property from property portals once you get to a particular stage, like instructing solicitors and proving that you have the funds.
There are advantages to buying before selling if you can fund the purchase through additional lending or savings. Here we've broken them down for you:
Removing part of the chain eliminates a lot of the stress.
You're less likely to get gazumped because you're less of a risk to the seller in terms of the property sale falling through.
Best of all, you can take your time and find the perfect property rather than feeling pressure to buy something due to your property selling.
Stamp Duty will be more expensive as it's classed as a second home.
You'll also be subject to Capital Gains Tax on the property.
You need a significant amount of funds or be in a position where you can afford an additional mortgage.
What are your other options?
If you're dead set on the house you've seen and can't bring yourself to pass up on it before it gets snapped up, then you do have a few alternative options that could help:
Sell your house fast service
This is how The Property Buying Company can help; if you're looking for a fast sale, we can buy your property in 7 days for cash. This should be more than quick enough for you to be able to go full steam ahead on your purchase.
Letting out your existing home
You have two options in this one; really, you can sometimes re-mortgage and change your product to a Buy To Let, which will free up equity to purchase your next property. Alternatively, you can ask your mortgage lender if you're allowed to rent out the house, creating extra revenue to pay for your mortgages on the next property.
Should I wait to sell before buying?
You can only complete the sale of your house or flat before buying another if you have somewhere to live lined up when your property is completed.
If not, then you may have a while to wait before you can move into your next property; let's take a look at some of the pros & cons:
You can wait until the perfect property comes to market; you don't have to rush into anything.
There's no onward chain when you come to sell your property, which can appeal to buyers.
It's a lot less stressful than buying and selling at the same time.
You'll have to find alternative accommodation for the period whilst you are in between homes, which can be costly and cause quite a bit of disruption in your life.
You should find your next property to be sure what the minimum offer you can accept on your property is to have enough funds.
You might need help finding a tenancy agreement in which you can leave whenever you want, so you might be tied into working around an onward rental.
Why market conditions matter
It would help if you always did your research into the market before buying and selling a property that goes without saying.
If you are looking to buy a house before selling your own, you may be taking a significant risk in borrowing more money or risking your purchase falling through if your home needs to market more quickly.
Do your research on how long you can expect your house to sell in your area; there are loads of tools that tell you what to expect. If it's a quick-selling area, you can get away with this at a relatively low cost, but of course, you are still taking a risk.
What are the tax implications of buying before selling?
If you decide to buy another house before selling the one you currently live in, then you technically own two properties – even if it's for a short time; this means you'll have to pay extra tax when you buy and sell your houses.
You will have to take into account your Stamp Duty Land Tax and Capital Gains Tax, which will change over time:
Stamp Duty Land Tax
Normally, with stamp duty tax, how much you need to pay will increase with the value of your property and is only applicable if your property is valued at more than £250,000 (as of 31st October 2022).
If you buy your new home before you have sold your old one — you are purchasing a second property and will need to pay an additional fee of 3%, stamp duty tax changes, so find out more here.
If you sell your old property within three years and the new property is your primary residence, you can claim back the extra fee.
Capital Gains Tax
This tax is based on your property's value while you own it. You only need to pay this tax while you own two properties.
If you buy a new property before selling your one, you will only need to pay Capital Gains Tax on the first property — but this can reduce your profit on a sale.
What About Making An Offer On A House Before Selling Yours
You might see an opportunity in your dream home, view it and be desperate to put in an offer – with the full intention of selling your own between making the offer, it being accepted and the proof of funds or mortgages in principle having to be shown to the estate agent.
Even if you intend to sell your house in that period, you're walking a bit of a tightrope.
If your home doesn't have a sale agreed upon and you bid on another property, you might not be able to go through with the purchase, and in the meantime, you'll annoy the seller by wasting their time and the estate agent of the selling property might not want to deal with you moving forward.
What Can I Do If I Go Ahead And Buy Another Home Before Selling Mine?
If you are adamant that you want to go down the path of buying a house before selling, and you are unsure if you want to use a quick sale company, and you don't want to go through the hassle of letting out – are there any ways you can finance your purchase should your home not sell in time?
You'll be happy to hear it is still possible, but your options are limited. There are two paths that you can go down:
Cover The Costs Yourself
If you're fortunate enough to finance the move by paying the deposit on a mortgage for the following property & cover the fees of both properties over the duration it takes to sell your own, then nothing is holding you back from doing this.
Use A Bridging Loan
A bridging loan is essentially a short-term loan – the whole purpose of this loan is to bridge the gap between selling your old house and buying your new one.
There are a few different types of bridging loans that you can go for, but be careful as they often have considerably higher interest rates than other loans.
What Are The Costs Associated With Bridging Loans?
Bridging loans allow you to borrow between £50,000 and £10 million, and the loan-to-value ratio tends to max out at 75%, so you will need to pay a minimum deposit of 25%. Remember that bridging loans have a much higher interest rate than other types of loans as you borrow the money for a short time. The exact rate will depend on the lender, but you could pay anywhere from 6% to 20%.
How To Get A Bridging Loan?
You can get a bridging loan much faster than your traditional mortgage, but lenders have strict criteria for you to meet:
1. Asset Strength
The lender will want to check that the property you are looking to buy isn't problematic (structural damage, dampness); if you are planning to redevelop a property, your lender will want proof that you can afford to carry out the work, you can project manage effectively, and the property will sell for enough money to make a return on investment.
2. Good Credit
Due to the nature of a bridging loan and the fact that you'll have to pay the loan back quickly, the lender will want you to have an excellent credit rating.
3. Exit Strategy
You will need a plan for how you will repay the bridging loan. This would be the sale of the property you're waiting to sell.
Bridging loans can be stressful, and if you don't meet the criteria, they can set you back to square one (considering that you'll still be paying Capital Gains Tax and Utility bills).
If you would rather sell your first property quickly and safely, sell to us!
Should I Buy A House Before Selling My House?
In summary, buying a house before selling your old one is possible, and you may choose to do this if the typical market is slow or you need to move home quickly.
If you pass the criteria, bridging loans can give you a good blanket of funding for a short while — but the interest rates are exceptionally high, and you'll need to pay more tax when buying first and selling later due to capital gains.
Buying a house before selling your current one can be costly, mainly if you cannot sell later down the line.
Are there any other routes other than buying a house before selling? Yes! There is the traditional route to selling below, or you can sell with a cash-buying company like us.
What's A More Typical Sales Process?
As you might expect by reading this article, buying a house before selling your own does not follow the typical sales process. Generally speaking, here is how you'll sell your home and buy another:
1. Find an estate agent to market your property.
If you are looking into buying a house before selling, the first thing you'll want to do is find an estate agent to market your property. Depending on the company, they will offer you variations of service and may use hidden fees to cover simple things like selling your property via floor plans, photography and more.
2. Agree on a sale price with the estate agents.
When you choose your estate agents, you need to create an educated and accurate sale price for your property; the estate agent can do this via a house valuation. This will act as the minimum you want to receive on the property.
3. Get professional pictures taken of the property.
If included in the estate agent's services, they will organise professional pictures of your property. If not, you may be charged an additional fee or even asked to manage it yourself!
4. List the property on popular property portals.
Next, the estate agents list the property on one portals. This includes either Rightmove or Zoopla, and your property will have access to over 89% of all online shoppers.
5. Host viewings can often either be done by yourself or the estate agent.
Estate agents should organise viewings or open days for your property, but some may offer this as an extra cost, or you may need to organise them yourself.
*Hopefully, someone viewing makes a bid in which you might have a bit of back-and-forth negotiation.
When someone makes a bid on your property, you can negotiate using the estate agents for more or less. Making a bid is not legally binding; it is only when the contracts are exchanged that this comes true. A bidder or yourself can pull out if the negotiations are not going your way; alternatively, you may also accept multiple offers if it suits you.
6. Agree on a sale price.
Once you agree on a sale price on your home, you then start looking and bidding on another property based on acquiring a mortgage in principle.
Once a bid is accepted on a property you found, you'll now be part of a property chain.
If you want to buy a house before selling your current one and don't want to deal with bridging loan lenders or average estate agents, why not sell with us?
We will buy your home on a timescale that works for you whenever you want. We are a proven and trusted quick, cash-house buying service rated excellent by thousands of happy customers.
We can sell your house in as quickly as seven days — allowing you to get a quick sale on your home whenever you want.