Sell first or buy first? How to be ready when the right next home comes along.

You’ve bought a home before, so some of the process will feel familiar. The difference this time is that you already have a property and a mortgage in the mix. Your likely sale price, existing lending, available equity and the timing of both transactions all need to line up with the next purchase.

That can make buying again feel a bit less straightforward than the first time. Maybe you’ve only just started looking. Maybe you’ve already found a home you’d seriously consider buying. Either way, one question tends to come up pretty quickly: Do we need to sell our current home first? The answer is not necessarily.

There are situations where you can start putting finance in place for your next home before your current property has sold. But there are a few things I’d want you to work through first. I see people in this position quite often. They’ve found the house they love, they’re worried someone else will buy it, and suddenly they’re trying to sort out the finance under pressure. If we can, I’d much rather start before you get to that point.

“Step through the numbers before you start seriously looking, so you know what you’re working with.”
- Serina Nicholson, Mortgage Adviser, The HTL Group

It doesn’t take the excitement out of looking. It means that when the right place does come along, you have a much better idea of what you can actually do.

First, work out what you’ll actually have to put towards the next home

If your home has gone up in value, you may have built up equity that can go towards your next purchase. The important thing is not to assume your home’s value minus the mortgage is the amount you’ll have available.

Selling costs come out of that too, and they’re easy to forget when you’re doing the maths in your head. You may need to allow for real estate agent and legal fees, possible costs for repaying fixed lending early and, in some cases, repayment of a bank cash contribution you received when you took out your mortgage. I also wouldn’t base your next purchase on the very best sale price you think you might get.

I prefer to work from a realistic, slightly conservative figure. Then we add in your income, living costs and any other debt. That gives us a much more useful number:

What could you realistically buy next?

So, do you sell first or buy first?

There isn’t one right order. Selling first gives you certainty, as you know exactly what your home has sold for and what you have available for the next purchase.

The tricky part is timing. Once you’ve sold, you need somewhere to go, and the settlement date on your sale may not line up neatly with the property you want to buy.

Buying before you sell can give you the chance to move when the right property comes along, but the finance has to work while you still own your current home.

One option may be a pre-approval that is subject to the sale of your existing property.

In some situations we may also look at bridging finance. That can allow you to hold lending across both properties for a period while your current home is being sold.

I wouldn’t treat bridging as an automatic fallback, though. The lender still needs to be comfortable with the overall position, including your income, debt, equity and likely sale price. 

We also need to think about what happens if your property takes longer to sell than expected or doesn’t achieve the price you hoped for. It’s much easier to work through those possibilities before there’s an offer and a deadline sitting in front of you.

What does pre-approval actually give you?

Pre-approval is useful because it gives you a much clearer idea of the lending that may be available before you make an offer. But there’s one thing I really want buyers to understand: Pre-approval isn’t approval of the house itself.

Your pre-approval is based on your financial position. Once you find a property, the bank may still need to check that particular home before the finance is confirmed.

So if you’re getting ready to make an offer, bring your mortgage adviser and lawyer in before you sign.

Your lawyer can advise you on the agreement and the conditions you may need, while I can make sure you understand where the finance stands.

Has anything changed since you bought your first home?

A lot can happen between buying your first home and buying your next one. You might now be self-employed. Your income may look different. You may have taken out car finance or other short-term debt. Your credit position may have changed too. Tell me.

I’d much rather know about those things at the beginning than discover them halfway through an application.

They don’t automatically mean you can’t buy. But they can change how a lender looks at your application, and different lenders can view the same situation differently.

Your current bank is one option, but it’s not the only one. Part of my job is knowing what different lenders are looking for, working out where your situation is most likely to fit, and looking at how the lending could be structured around the move. That matters more to me than promising you the fastest approval.

One other thing: is your mortgage about to refix?

If you’re thinking you may sell soon and your current mortgage is also coming up for refix, tell me before you automatically lock it in for another long term. Those two decisions need to be looked at together.

If you fix for a longer period and then sell earlier than expected, that can affect your flexibility and may create costs if the lending needs to be repaid early.

We can look at the likely timing of your move alongside the rates and loan structures available at the time.

It’s worth having that conversation before you make the refix decision rather than trying to undo it later.

Already found somewhere?