August 06, 2024 by Mortgage Choice Concord
It’s important to weigh up the pros and cons of each approach.
It’s the age-old question – when you’re planning to purchase a new home to live in, is it better to
sell your current property before making an offer on a new one, or should you secure your new
property first before selling your current home?
With various factors to consider, we’ll take a look at the pros and cons of each approach so you can
determine what’s right for you.
Selling before you buy
Selling your current property before buying a new one is often seen as the safer option. It means
you’ll know exactly how much you can spend on your next property, and you won’t feel pressured
to sell your home for a lower price than it’s worth for the sake of a quick sale.
If the market is competitive, your offer may be attractive to a vendor because you won’t have to
include conditions around the sale of your current property.
The main disadvantage of selling first is that you may need to find temporary accommodation for
the time between moving out of your old home and into your new one. It may be possible to rent
your property back from the buyer of your home for a short period of time, or you can try to find
short-term accommodation elsewhere. Either way, you’ll have to factor these costs into your
budget unless you have the option of staying with friends or family.
Another risk to be mindful of is that if property prices are rising quickly, homes that were
previously within your budget could quickly become out of reach. This is especially true if you’re
upsizing to a larger property or one in a more desirable location.
If you think you’ll be able to buy your next property quickly, you may want to speak with your
selling agent about negotiating an extended settlement. If the buyer agrees, you’ll have a little
more breathing space when it comes to buying your next home.
Buying before you sell
In a competitive market where you’re confident you’ll receive a good price for your property,
buying before selling may be a better move. It means you won’t have to find temporary
accommodation because you’ll be able to move into your new home as soon as it settles. And
keeping your property pristine for open houses and private inspections is far easier to do when
you’re not currently living there.
However, if you buy first, you might not be able to line up your buying and selling settlement
dates. This means there could be a period where you need to service two mortgages. If you’ve
built up significant equity in your current property this might not be a problem for you – otherwise,
you’ll need to organise temporary finance to cover the gap.
For this reason, buying first tends to be more stressful because the longer it takes you to sell the
property, the higher your finance costs. You might feel pressured into taking the first offer you
receive, even if it’s less than what you wanted.
One option you might want to consider is moving into the new property and renting out the
previous property for a short period of time before selling it. While this brings its own
complications in terms of becoming a landlord and keeping the property in a saleable condition, it
will give you plenty of time to secure the right buyer, at the right price. It may also make the
property more attractive to potential investors because they won’t need to find a tenant.
Temporary finance options
If you buy your property before selling your previous one and you can’t line up the settlement
dates, you may need to secure temporary finance. We can discuss the temporary finance options available to you.
There are two main options:
1. Bridging loan
A bridging loan is a short-term loan (usually up to 12 months) that’s used to cover the cashflow
gap between buying and selling property. The repayments are interest-only. Keep in mind that
you’ll be paying two loans – your current mortgage plus your bridging loan. The interest rate on a
bridging loan may be higher than other types of loans, so the costs can quickly stack up if your
home takes a long time to sell.
2. Deposit guarantee
A deposit guarantee, also known as a deposit bond, offers another financing option. Instead of
putting down a cash deposit to secure your new home, you may be able to take out a deposit
guarantee provided by a lender. A deposit guarantee can be a cheaper alternative to bridging
finance, and it provides reassurance that the new property will be held until you settle your own
home.
Get in touch
There’s a lot to think about and coordinate when you’re buying your next home. But support from
your mortgage broker can help make the process hassle-free so you can focus on finding the right
property.
