How to do buying and selling effectively

In the last couple of months, we have seen a lot of clients, new and existing, looking to purchase a new owner-occupied home and want/need to sell their existing home as part of the changeover. Common reasons we are seeing include;

  • Families upsizing
  • Empty nesters downsizing
  • People moving locations to start new jobs
  • People looking to build their dream home locally
  • Buying the future home now

On the surface, it seems like a straight forward process. In reality it can be a very challenging transaction to navigate, particularly if you would prefer to not have to sell your existing home prior to purchasing your new home. Most people like the idea of being able to purchase/build their new home first mainly due to the following 2 reasons;

  • It allows time to move into the new property and then prepare the current home for sale as vacant possession which can make it easier to sell and with some staging, potentially achieve a better price.
  • Not to have to find temporary accommodation in between selling and buying. This might mean needing to rent a property, stay in a hotel, stay with a family member and hire a storage facility. It then also means that you go through the dreaded moving process twice.

The challenge around this process is that you still need to be able to fund the new purchase in full, inclusive of stamp duty, legal costs and moving costs before having access to the proceeds of the sale of the existing home.

The 3 main options that are available are as follows:

  1. Fund the new purchase as normal – This is where we can establish a loan for the new purchase in full as a standard home loan. We need to be able to demonstrate that the client can service the full level of debt under standard terms. This can be a challenge when interest rates are sitting at 13-year highs.
  2. Bridging Finance – This is also where we can establish a loan for the full amount required to settle the new purchase. The major difference is that the bank will base the serviceability assessment on the “end debt” – i.e. They will assume that you have sold your existing property when they assess your capacity to purchase the new property. They will then give you a certain amount of time to sell your existing property. Typically, this is 6-12 months. - **NOTE – Bridging is also available for buying vacant land and building**
  3. Portability (AKA substitution of security) – This is where the client will essentially negotiate the new purchase to be subject to the sale of the existing property. This allows the new purchase to be agreed to but not needing to be unconditional until the existing sale property is also unconditional. Assuming the purchase price is lower than the sale price, this avoids the need to secure any further finance for the new property and any existing loan can remain in place and be secured by the new property.

Of course everyone’s situation is different so there is no “best” option out of the 3 different strategies. The above examples are very simplified explanations of each option and each on their own can be quite complex in nature. If you are looking at selling and buying and want to see what options are available to you before you start making offers, please reach out to our team - 0721121379


Published: 7/11/2024
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