How To Buy A House Before Selling Yours In The UK
Buying a house before selling your own can be a bit tricky, but it is possible. Here are some steps and considerations to take into account if you’re in the UK.
- Financial Evaluation: You should first establish whether you can afford to buy a new house before selling your current one. You may need to pay two mortgages at once for some period, so ensure your finances can handle this. It’s wise to consult with a mortgage advisor or financial planner at this stage.
- Bridging Loan: A bridging loan can be a viable option if you find your dream home before selling your current house. Bridging loans are short-term loans that cover the period between buying your new home and selling your old one. They can be more expensive than regular mortgages, and they require you to have a solid exit strategy, i.e., a plan for repaying the loan (usually through the sale of your current home).
- Sale and Rent Back: In this scenario, you sell your property but stay in it as a tenant until you find a new home to buy. This could work well if your buyer is an investor who’s looking to rent out the property, but it can complicate matters if they’re planning to live there themselves.
- Homeowner Loans: If you have sufficient equity in your current home, you might consider taking out a homeowner loan to finance your new home. This is a loan secured against your house, and it typically offers better interest rates than unsecured loans. However, be aware that your home is at risk if you don’t keep up with repayments.
- Contingent Offer: This is when you make an offer on a new home that’s contingent upon the sale of your current home. While this can work, it’s less attractive to sellers if they have other offers that aren’t contingent on a home sale.
- Sell First, Then Buy: If the market is hot and homes are selling quickly, you might choose to sell your home first, then rent for a while until you find your new home. This would give you the cash you need for your new home and avoid the risk of paying two mortgages.
What Happens If I Sell My House and Don’t Buy Another?
Sellers that find themselves in this situation have plenty of options to choose from including;
Cash in Hand: After paying off your existing mortgage and any associated selling costs (like estate agent fees), the remaining money from the sale of your home is yours to use as you wish.
Renting: If you’re not purchasing another home, you’ll likely need to make arrangements for your next place of residence. If you choose to rent, the proceeds from your home sale could cover rental costs for a significant period, depending on the rental rates in your area.
Capital Gains Tax: In the UK, you’re generally exempt from capital gains tax when you sell your primary residence, under a relief known as Private Residence Relief. However, if you sell a property that is not your main residence, such as a holiday home or a property that you rented out, you may be liable for capital gains tax on any profit you make from the same property after the sale.
Investment Opportunities: You can invest the proceeds from your home sale. For instance, you might consider buying a rental property as an investment, investing in stocks or bonds, or simply placing the money in a high-interest savings account.
Downsize or Change of Lifestyle: Selling your home without buying another one can offer an opportunity to downsize, travel, or pursue a change of lifestyle. For example, you could use the money to buy a smaller, more manageable property, a mobile home, or even a boat, depending on your preferences and lifestyle goals.
Living Arrangements: If you are considering moving in with family or friends, or even considering a more communal living situation, selling your home can free up resources to contribute to this new living arrangement.
A Quick Guide to UK Tax Implications of House Sales
When selling a house in the UK, you need to consider the following tax implications:
- Capital Gains Tax (CGT): This tax is due when you sell a property not exempted or not your main residence. It’s calculated based on your profit from the sale, beyond your annual tax-free allowance, with rates depending on your income tax bracket.
- Principal Private Residence Relief (PPR): Selling your main residence might qualify you for PPR, which exempts you from CGT on that property.Conditions apply, especially if you’ve rented out a part of the property or used it for business.
- Lettings Relief: If you’ve rented out a property that was once your main residence, you may qualify for Lettings Relief, offering an additional CGT deduction, subject to certain conditions.
- Stamp Duty Land Tax (SDLT): SDLT is paid by the buyer, but can impact your sale if you’re part of a property chain or if you’re buying a new property.
- Inheritance Tax (IHT): Property sales can have inheritance tax implications. Professional advice can help with estate planning strategies to mitigate tax liabilities.
Always consult with a tax professional to understand the specific tax implications based on your circumstances. They can provide tailored guidance, assist with tax calculations, and ensure tax regulation compliance.
Are There Any Restrictions On Selling A House Shortly After Buying In The UK?
Once you’ve completed the purchase and registered your ownership with the Land Registry, you can sell your house at any point, but some mortgage companies may have a six-month “rule” limiting applications for properties purchased within that timeframe. Check your mortgage terms and consult with your lender for associated fees or penalties. You should also be aware of any deed restrictions or conditions that apply to your property so you can avoid potential fees or penalties, and ensure compliance.
The Process For Buying And Selling A House
Determine your budget
Before buying a new house, assess your financial situation and determine how much you can afford. Consider factors such as your income, savings, and the amount you can secure through a mortgage.
Get a mortgage pre-approval
If you require a mortgage to purchase a property, it’s beneficial to get pre-approved. This step is where you provide lender information about your savings, income and level of finance you need to buy. They will assess your suitability and provide you with a pre-approval letter if you meet their criteria showing how much you could borrow.
Finding a real estate agent
Engage a reliable and experienced real estate agent who can assist you in the buying and selling process. They can help you find suitable properties, arrange viewings, negotiate offers, and chase up the legal and paperwork aspects.
Get inspections and surveys arranged
Before finalising the purchase, it’s wise to conduct inspections and surveys to identify any issues or potential problems with the property. This may involve a home inspection, structural survey, or specialised inspections based on the property type.
Arrange legal and financial aspects
Engage a solicitor or conveyancer to handle the legal aspects of the transaction, including property searches, title transfers, and contract completion. Coordinate with your mortgage lender to finalise the financing arrangements and move to the exchange of contracts phase.
Exchange of contracts & completion of sale
Once both parties agree on the terms and conditions, contracts are exchanged, and a deposit is typically paid. This legally binds both the buyer and seller to complete the transaction.
On the agreed-upon completion date, the remaining balance is paid, and ownership of the property is transferred to the buyer. The keys are handed over, and you officially become the property owner and new homeowner.
Selling your current property
If you’re selling a house concurrently, you will follow the same process as outlined above for listing your property, marketing it effectively, conducting viewings, negotiating offers, and completing the legal requirements.
It’s important to note that the specific details and requirements may vary depending on the location and specific circumstances. Working closely with professionals such as real estate agents, solicitors, and mortgage lenders will help ensure a smooth and successful buying and selling process.
Selling a house shortly after buying in the UK requires careful consideration and planning. By understanding the buying and selling process, exploring financing options, considering the UK housing market, being aware of tax implications, and anticipating potential delays, sellers can navigate the process more effectively. Always seek professional advice tailored to your specific circumstances for a successful and smooth transaction.