If you're planning on upgrading or downsizing your living arrangements anytime soon, there are a few issues to weigh up before settling on a strategy to buy or sell first.
Let's consider the advantages of a sell-first strategy. If it's possible to negotiate a delayed settlement on the sale over and above the traditional 42 days, this might buy you time to find your next home and move into it, before settling on your original property. A more extended settlement period not only reduces the pressure to find a new property, but it also stops potential buyers from taking advantage of the fact that you need to sell fast to help finance the next dwelling.
That said, if you're too finicky about finding a suitable next home, an extended settlement may not save you. In this situation, you might need to move into rental digs. Leasing a short-term rental will involve paying a removal company twice to relocate your possessions, as well as weekly rents.
There's the possibility that prices might go up after you sell. This situation is more an issue for upgraders as the sell-first approach can leave you at the mercy of the market.
On the flipside, by buying first, you could avoid moving into a rental property and forking out for multiple moving fees. Besides, you could avoid having to find a new property in a hurry if you choose this strategy.
However, by buying first, you may need a ‘bridging loan' to finance the new property and meet the repayments on the mortgage against your existing property. Bridging loans cover homeowners for short periods of up to 12 months, and lenders will usually take security over both properties until the original property is sold and settled. There are several ways these loans can be established, with some lenders allowing borrowers to add interest payments to their existing mortgage to relieve the day-to-day financial pressure.
Other lenders may require borrowers to demonstrate the ability to service the existing loan and the new bridging debt. Also, expect lenders to impose strict conditions on these loans and potentially you’ll pay interest rates that are higher than conventional mortgages.
For more information about bridging loans, contact Our Broker on 1800 913 677.