A busy housing market means that if you find a property you wish to buy but haven’t found a buyer for your own home, you could miss out. Few people have the cash available to buy a new home before they sell their existing property but there are other solutions worth considering.
Let-to-buy
One option worth considering is let-to-buy. This is where you rent out your existing home, releasing some of the equity built up in it to put towards the deposit on your new main residence. However, you will have to weigh up the pros and cons of being a landlord if you go down this route, ensuring the property is properly maintained, safety requirements are met and you have enough cash set aside to cover void periods should you not have a tenant. Rental income must also be declared to HM Revenue & Customs, and you may have to pay additional tax.
There is also additional stamp duty to pay if you own more than one property. This works out at an extra 3 per cent on top of the standard rate of stamp duty although if you do decide to sell your original property within three years, you can claim back the difference between what you paid and the standard rate for moving.
If you decide to go down this route, you will have to remortgage from your residential mortgage to a let-to-buy. Various lenders offer this option – indeed, your own lender may have a competitive product worth considering ¬– but you should seek independent advice from a whole-of-market broker such as AWS Private Finance to ensure you explore all the options available to you.
Bridging finance
Another option if you have not yet sold your own home, and don’t wish to rent it out, is bridging finance. Funds are released quickly – usually far faster than a standard residential or buy-to-let mortgage – enabling you to move quickly to secure your onward purchase.
Bridging finance is regarded as a short-term option with pricing on a monthly basis, and loans usually running for up to a maximum of two years. With bridging, the exit strategy is all important, with loans typically taken for 12 or 18 months; once you have found a buyer for your existing home, the idea is that you repay the bridging loan from the sale proceeds. Bridging loans can usually be exited early without any exit fees or early repayment charges, so check this is the case before taking out a loan.
At AWS Private Finance, we have plenty of experience in arranging bridging finance and let-to-buy funding, as well as good relationships with high-street and specialist lenders alike, so can ensure we get the right funding for your circumstances. Please get in touch for more information.
