Buying your next home
Should you sell first?
You’re already a homeowner, but you’ve decided it’s time to look for your next home. This guide will take you through the key steps you may need to cover.
So should you sell before you look for somewhere new? This is the first big decision to make. Some people choose to complete the sale of their current property first and move into temporary accommodation before finding their next home. There are a number of advantages to this approach.
Being a cash buyer can put you in a strong position when negotiating for your next house, as you can make a firm offer and will also have no downward chain. You may therefore be offered a lower price, and the whole process should be quicker too.
But there are downsides to this approach. You will have to move into other (probably rented) accommodation, with the associated costs and inconvenience. And with the money from your home sale now in the form of cash, your purchasing power will shrink if property prices are rising. (Conversely, this may be a good strategy in a falling property market.)
The alternative (which most people opt for) is to complete both your sale and your purchase on the same day. Find out more about how conveyancing works.
This is a question to discuss with your mortgage adviser, who can tell you the pros and cons regarding your own situation.
Choosing your next home
Another big question to consider is: why do you want to move? You may want more space, a better location, good local schools or something else; but whatever your priorities, you should focus on them when home-hunting so you don’t get distracted.
Bear in mind that moving home is both costly and a big upheaval. So think ahead and try to ensure that whatever home you choose will suit your needs for at least the next five years.
Also think about what you are leaving behind. Do you currently take anything for granted (like good public transport) that your new location might not have? If moving to a new area, research it thoroughly and spend plenty of time there before committing to it.
This is particularly true if you are downsizing. Are you ready to live in a home that may be smaller or in a less popular location? And will it free up enough money to justify the expense of moving?
Your new mortgage
Buying your next home usually means taking out a new mortgage. Often you can transfer (‘port’) your current mortgage to your next property, but you’ll still have to reapply for it. Assuming the property is more expensive than your current home, you may also have to borrow more money. This will be a factor in any mortgage deal you may be offered.
On the plus side, your current home may now have some equity. This is the difference between the property’s total value and the amount still left to pay on your mortgage. Your equity may serve as all or part of your deposit, though you might still need to use additional savings (depending on the price of the property you’re buying).
If you’re downsizing, the equity from your old home may be sufficient to cover the full cost of your next one, in which case you won’t need a new mortgage and your old one will be fully paid off.
Talk to your mortgage adviser about your mortgage needs for your next home, as they will help you to secure the best available deal.
You will probably have to pay stamp duty land tax (often called just stamp duty) on your purchase. This typically adds a few thousand to your purchasing costs, so factor it in.
Stamp duty is charged in bands. You pay nothing on the first £125,000 of the home's purchase price, then gradually increasing charges on the higher 'slices', as shown in this table:
Portion of home purchase price
Rate of stamp duty
£0 - £125,000
£125,001 - £250,000
£250,001 - £925,000
£925,001 - £1.5 million
Be aware that if you’re buying a second home (so that you own two or more homes simultaneously), your stamp duty will be 3 per cent higher.
Use this stamp duty calculator to find out how much you should expect to spend when you move.
In Wales and Scotland the rules are different. In Wales the tax is called Land Transition Tax (LTT) and in Scotland it's called Land and Buildings Transition Tax (LBTT). Use these calculators instead:
Selling your home
It’s possible to sell your home yourself online, but most people still use an estate agent. When selling your home the estate agent works for you, so you pay their fee – usually between 0.75 per cent and 3 per cent of the sale price, plus VAT. It is their job to try and achieve a timely sale at the best achievable price – but as ever, some are better than others, so shop around.
As when buying, you will need to engage a solicitor to handle the conveyancing. Usually this is the same one who is handling your purchase, though it doesn’t have to be. Also keep in touch with your mortgage adviser throughout the process, as the price you agree for your sale may affect how much you need to borrow on your next mortgage, and what kind of deal you can secure.
Not everyone sells their home when they buy another one. Some people let out their existing property and use the income to pay off their new mortgage (this is known as let-to-buy), and some can afford to have two or more homes simultaneously. However, both of these scenarios result in higher stamp duty on your purchase.
Being part of a chain
House-buying often happens in a ‘chain’. The buyer of your home may also be trying to sell their home, or your seller is also trying to buy, or (very often) both. The more buyers and sellers are in a chain, the harder it can be to reach a successful outcome, since if one vendor or seller pulls out the whole chain can collapse.
It’s therefore a good idea to look for houses with shorter chains, or even no chain at all. That’s the main advantage of selling your home first, as this makes you the end of the chain both when selling and when buying your next home. This can help you to negotiate better prices for yourself.
When you’re part of a chain, your solicitor and mortgage adviser are your best friends. They’ll be tying up loose ends and chasing people to help your sale and purchase go through as quickly as possible.
When your offer is accepted, both the buying and the selling process – known as conveyancing – can begin. You may need to see your solicitor in person several times and hand over important documents, so finding one locally is preferable.
Your solicitor’s job is to ensure that both your purchase and your sale is fully legal and that there are no nasty surprises for you – such as finding that your new property is on a short lease, or that your buyers are complaining that you misled or deceived them somehow.
During the process, your solicitor will help to manage the chain to ensure everything happens as quickly as possible (however, don’t be shy about chasing them). They will negotiate moving dates, exchange the contracts and transfer all the relevant money on the big day.
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Before you can move home, you’ll need to have buildings insurance in place for your next home in case something happens to the property after you’ve exchanged contracts.
When you’re selling, you’ll have to keep your current property’s building insurance in place until after you’ve moved, just in case you become liable for any damage during the move. After completion, you can contact your insurance provider and cancel the policy – they may give you a refund. Your solicitor can tell you how long you need to keep your insurance in place, and if you need it all.
Life insurance is not compulsory, but is usually essential anyway. It means that your mortgage will be paid off in full should one of the mortgage holders die, so your family can stay in their home. Your financial adviser can help you set this up.
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