Should you sell before you buy your next home?

What you’ll learn

• The pros and cons of selling first
• The pros and cons of buying first
• How a bridging loan can help
• Buying a new property while selling
• Situations to avoid

 

The pros and cons of selling before buying

Depending on your financial circumstances and the urgency of your next property purchase, selling your home first makes sense for many reasons – although there are some downsides to consider too.

Potential benefits

1. Knowing your purchasing power. You’ll know exactly how much money you have available to purchase your next home.
2. Funds are readily available. Once settlement on your previous property has gone through, you’ll have money available for the purchase of your next property.
3. You don’t need to rush the sale. You can wait until you’re happy with the sale price of your property, without having to rush to sell because you’re maintaining two mortgages.
4. It could reduce stress levels. If you buy before you sell, and selling your property ends up taking longer than expected, this can be stressful financially and emotionally.
5. You won’t need a bridging loan. To help finance two properties at once.
6. Vendors love cash offers. In a competitive housing market, being able to make an offer on a property without conditions around selling your old home could make your offer more attractive to vendors. And if the sale of your previous property has left you with enough cashflow that you don’t need to secure lending at all, that could help you to make a strong offer to a vendor too.

Potential disadvantages

1. Rising property prices. There’s a chance that property prices will go up between the time you sell and buy, which could mean that you end up spending more on buying your new home than anticipated.
2. Potential rental costs. You may need to pay for rent until you’ve bought a new home, as well as the hassle of moving twice within a relatively short period of time.

The pros and cons of buying before selling

Buying before selling is often seen as a riskier strategy, however, it could be a good option particularly if you’ve built up significant equity or have a large amount of cash. If this is the case bridging finance could be an option to help you buy first.

Potential benefits

1. Get more from the sale, and the purchase. In a market with rising house prices, the earlier you buy, the more you may get for your money. In this kind of buoyant market, you may then also make more from your house sale later on.
2. Avoid renting and multiple moves Avoid having to move into a rental or temporary accommodation while you search for a new property.
3. Take advantage of your equity. If you’ve built up significant usable equity (the portion you have paid for) in your current home, you could use it to secure finance on your new purchase.

Potential disadvantages

1. You’ll need equity. You’ll likely need to have a significant amount of equity in your existing home. We recommend 50% to get a bridging loan or fund another loan.
2. Managing more than one loan. Servicing two mortgages, or managing your existing home loan and a bridging loan, can be a big financial pressure. Make sure you do your calculations upfront to make sure you could manage increased costs.
   
3. You may need a deposit. If you need to borrow 80% or more of the security value of the property you’re buying, you’ll need a 5–10% cash deposit for your new property purchase. Since you haven’t sold your existing property yet, you’ll need to have this amount as savings.
   
4. Added pressure to sell. With two properties and the intention to only keep one, the pressure is on for you to make sure your first home sells in good time. This could mean accepting an offer at a lower price than you intended. A bridging loan is available for up to 12 months.

How a bridging loan can help when you’re buying and selling

A bridging loan can help if you’ve bought a new home before you’ve sold your old one. Instead of paying two mortgages, one for each property, you’ll just continue paying your current home loan with your bridging loan added to the balance. It’s a short-term solution to help you manage until your old home is sold.
 

When you sell your house, you’ll pay off the bridging loan and the interest on the loan that’s accumulated. As a bridging loan is likely to be on a variable interest rate, you may be paying higher interest costs than a fixed rate. A bridging loan may also command additional fees and charges.

Learn more about how a bridging loan works.

Home buying while selling

It’s fairly common to choose to buy a property first, but make the sale subject to selling your existing property. This means you are making an offer, with the condition that you will only go through with the purchase if your current property is sold with a set time frame.
 

For some people, this is the ideal solution as it means you don’t have to pay for two mortgages at once. However it’s worth noting that having this condition may make your offer less appealing to the seller than others, and it can add some stress around selling your property in time.

What are some situations to avoid?

Planning ahead and having a clear strategy when home buying and selling can help you to avoid these situations:

• Needing to sell your home quickly. You’ve found a home you want to buy, but you need to sell your current property in a very tight timeframe. Putting in an offer on a new property with the condition that you need to sell your home first is common, however if you haven’t even started the process, or have only given yourself a short timeframe, there’s a chance you won’t be able to meet the condition and your offer may fall through.
• You haven’t spoken to your lender. You’ll need a really clear idea of your finances and what you can borrow, before you make an offer. So it’s important to speak to your lender first.
• You don’t have cash for upfront deposits. If you’re buying a new property at auction, you’ll probably need to pay 10% of the purchase price immediately if you win the auction. Also, if you make an offer that’s accepted, you’ll need a deposit – typically 10-20%. Likewise, buying a home utilising a bridging loan might also require a 5-10% cash deposit. Make sure you have sufficient funds for this.

To sum up

• There’s no perfect way to manage selling your home and buying another, but planning and understanding your personal situation is key to a successful sale and purchase.
• Understand what kind of property market you’re working in – a seller’s market or a buyer’s market – and plan for maximum advantage for you.
• Consider things like conditional offers to help give you time to sell your home before you close the deal on the next.
• Look at your financing options; a bridging loan could help.
• Avoid situations where you have to sell your home quickly.
• Seek credit assistance from a lender or broker to get advice that’s specific to your needs.