DJ Dunk

iTrader: (5)

Okay, pretty much made my mind up on this as its not a decision to be taken lightly, but I am interested to hear what everyone else would do in this situation.

Here goes . . . . .

I have bought a new house with which I am to exchange contracts with immediate effect. No flexibility, either I sign now or the new house goes back on the market. The house will not be built until Oct/Nov. Completion date proposed for approximately Oct/Nov.

I have a buyer for my house but exchange of contracts will not happen for about 4 weeks. My builders solicitors will not wait for this.

So I have 2 options:

1) Lose the new house and lose my deposit
2) Sign contracts on the new house at the risk of my buyers pulling out.

I can find the deposit on the new house, which is due at exchange, but I am then legally bound to buy the new house without a definate buyer for mine.

What do you think ?

carl

Buy it, because you're bound to find a buyer for yours (providing you're flexible enough on the price) before Oct/Nov. OTOH it may be possible to sell your option on the new house to someone else nearer the Oct/Nov date?

MrDBM

will the new house co take your old house in part-ex?

sounds weird but many house builders (including mine) do it

DJ Dunk

iTrader: (5)

Fraid not. They do not take Part-Ex.

carl - Your second point is a good one

[Edited by DJ Dunk - 5/29/2002 1:25:07 PM]

Tiggs

worse case is the market plumets (no sign of that) and u end up giving yours away in oct for low money. as long as you can afford that worse case then do it.

T

MarkO

We had a similar (but not identical) quandry two weeks ago. We found a beautiful house in Scotland, and wanted to put a deposit on it. However, we'd have needed to put a 2.5% deposit down and be legally bound to buy the house, and we hadn't got a buyer for ours (in fact, ours wasn't on the market right then).

We don't want to lose the house, but in the end decided that we couldn't commit to buying the new property without any guaranteed buyer for ours. We even considered a bridging loan, but given the current stage we're in in the economic cycle, it's about the most dangerous thing we could do. After all, if the bubble's going to burst, it's going to burst soon - which would leave us with two houses, and increasing interest rates on the mortgage.

I'm assuming you have the deposit for the new house - the question is are you prepared to lose it? If your buyers look keen, you might be all right, but in England there's nothing to stop them walking way at any point before exchange.

Bear in mind though that although you may be prepared to lose your deposit, if for any reason you can't sell your house in time, and have to pull out of the sale after you've exchanged contracts, you won't just lose your deposit - there's nothing to stop the developer suing for breach of contract - he could take you to court for tens of thousands of pounds. If somebody pulled out of a sale of our house after exchanging, that's certainly what I'd do, anyway.

Your solicitor would be the best person to comment on this really. Personally, I'd be very nervous of the situation, although the timescales (4 weeks) are probably short enough where the market won't collapse before the contracts are exchanged on your current house...

fast bloke

your new house will be worth more than you paid for it as soon as it is built. Speak nicely to your bank manager about a worst case scenario where you need to have two mortgages for a short period while you sell one of the houses. Nice Mr Manager person shouldn't have a problem as the new house will have immediate equity and your old house will have some anyway, so he isn't carrying any risk

DJ Dunk

iTrader: (5)

MarkO - Good points, well made. Thanks

FB - You're right. Its really lender that I'm concerned about. That is, whether they will accept the fact that (worst case) I will temporaruly have 2 mortgages. Can't see that would be too mauch of a problem in todays climate ?

MarkO

Sorry to bring a downer here, but your lender will almost certainly not give you two mortgages at the same time. One of these would count as a bridging loan - and very few mortgage providers will do them. Bank of Scotland certainly wouldn't - I asked when attempting to solve the above situation. Nice Mr. Manager will see them as a massive risk - since you'd effectively have to service two mortgages at the same time. You can ask, but I'll guess that they'll just say no.

It's also worth bearing in mind that a bridging loan is very expensive - usually 4% above base rate or more. I would seriously recommend against one though - everyone I've spoken to has said it's not a good thing to do right now. Search the web (or www.thisismoney.co.uk for details about bridging loans (www.charcol.co.uk also have info about them) and you'll see that few people provide them, and they're expensive.

There is one other solution though. If your house is rentable, you could tell the lenders that you're keeping it to sell, and convert the mortgage to a buy-to-let one.

You'll need to provide evidence of its viability of renting (talk to an accredited Letting manager for this - www.arla.co.uk) but the lender might just go for it. You then pretend to look for tenants for a couple of months, taking out a fresh mortgage on the new property at the same time. Since you don't actually need tenants to get a buy-to-let mortgage, you could give up after a couple of months and sell the house to the original purchasers.

Effectively you're using a buy-to-let mortgage as a bridging loan, because you never tell the lender that you're not really intending to let the property. Bank of Scotland even offered us a buy-to-let at our current low rate - so it would have been cheap, too. We were going to try this, but our only problem was that our house is too big, meaning we couldn't guarantee enough rental income out of it to satisfy the lender (the buy-to-let market is saturated at the moment, and ours would have been at the top of the corporate letting scale).

But if your current house is, say, a 3-bed semi (i.e., prime renting stock) it could work. Email me offlist if you're not clear what I'm on about and want it explained.

fast bloke

Mark0 - good plan. Both Northern and Woolwich have offered me loans on a second house. They were termed briging loans, but they were at the same rate as my current mortgage.

You could also tell the bank that the new house is an investment property, but be careful you don't end up paying CG tax if you sign something that says it is. AFAIK you have 6 months overlap between completing the build and selling one of the houses to avoid CG

DJ Dunk

iTrader: (5)

If all goes to plan my buyers should sign contracts in about 4 weeks (they made the offer last week). With this in mind do you think it was be a problem for the mortage company if I tell them the situation ?

DJ Dunk

iTrader: (5)

Hopefully it won't get to the stage where I have 2 mortgages as I won't be completing until Oct-ish ?

MarkO

CG tax shouldn't be an issue here since Dunk has lived in the previous house (so it's been a primary residence - and not just bought outright as an investment).

As for telling your lender, I guess there's only one way to find out.