Buying a 2nd property (short term) and then selling 1st

[B9]

Our sale looks likely to fall through but we don't want to miss out on our onward purchase.

We have a property worth 550k and 225k mortgage, 4.4% and 1 yr remaining.

New property is £500k. We have £100k savings for a deposit, and £100k for stamp duty (£25k) and renovations (£75k+) which will require renting for 6 months or so whilst works carried out (rent for a family home here is c.£2k per month).

I've heard of bridge loans (£££) but would like to avoid this.

Is it viable for us to take out a mortgage for property 2 and remain in property 1 (with 1 being our main residence), and then selling property 1 when we've completed renovations of property 2?

Assuming affordability is OK for the additional £400k, am I right in thinking:

1) no capital gains will be due on disposal of property 1 as this has been our main residence and we never rented it
2) no future capital gains will be due on disposal of property 2 as this would be our main residence when we come to sell, and we never rented it
3) Assuming we sell property 1 within 2-3 years, we can reclaim the additional stamp duty we had to pay on property 2?

On this basis, we'd also save the £2k per month on rent

Thanks

Edited by B9 on Wednesday 21st August 15:28

[Eric Mc]

Will you be living in "Property 2"?

[B9]

We’ll live in property 1 whilst we’re renovating property 2

When property 2 is ready to move into we’ll sell property 1

There might be a few months overlap (ie whilst we’re selling property 1 we might move into 2 for convenience of viewings etc), but not if that creates a liability

[BoRED S2upid]

Will you save the £2000 a month though? You will have a large mortgage on property 2 for the 6 months that you will have both properties.

Isn’t this exactly what a bridging loan is for? Or a caravan in the garden of property 2.

[B9]

BoRED S2upid said:

Will you save the £2000 a month though? You will have a large mortgage on property 2 for the 6 months that you will have both properties.

Isn’t this exactly what a bridging loan is for? Or a caravan in the garden of property 2.

We'll be spending £2k per month on the second mortgage, so no we won't be saving money - there's a school of thought that property 1 continues to appreciate as we 'sold' it 6m ago and secured the property 2 we want to buy - and the market has moved on since then. We could easily list for £15k more, and didn't accept highest offer at the time as the buyers were most proceed able (mistake).

We also accept if this approach costs us £5k-£10k extra, as ultimately we just want property 2 and could lose out if we don't move quick.

We also wouldn't need to move twice (furnishings etc) as property 2 needs major renovations, nor would we be tied to a fixed schedule (which we might find ourselves if we were renting?)

Toyed with the idea of caravan but reality is with 2x kids that'd be a nightmare!

Edited by B9 on Wednesday 21st August 16:59

[boyse7en]

Property 2 is £500k, and you have £100k deposit, which means you will need a mortgage of £400k.

At an interest rate of 4.3% (you may be able to get cheaper, or more expensive, I just looked up a standard rate) you will be paying £1434 per month in interest, so your actual saving per month will be about £650, not £2k.

[Eric Mc]

B9 said:

We’ll live in property 1 whilst we’re renovating property 2

When property 2 is ready to move into we’ll sell property 1

There might be a few months overlap (ie whilst we’re selling property 1 we might move into 2 for convenience of viewings etc), but not if that creates a liability

How long will you live in Property 2 before it is sold?

[B9]

At least 5 years I would hope!

[Sarnie]

Your main issue, without knowing the details, will be affording both mortgages from an application point of view. Even if the property will be sold in the future the lender will still take your current mortgage payment into account for affordability purposes. Some lenders also won't lend where there will be two residential properties/mortgages, Coventry BS for example.

I'm a broker, happy to help if you wanted to drop me a line for a chat

[BoRED S2upid]

Eric Mc said:

How long will you live in Property 2 before it is sold?

Sounds like a long term move if they are spending so much on it.

Crack on I say sounds like it all works on paper and a 6 month renovation could easily take 12!

[Eric Mc]

B9 said:

At least 5 years I would hope!

If that's the case, this means that there shouldn't be any problems regarding Capital Gains Tax when the property is eventually sold.

There have been many cases where HMRC has challenged whther a property really ever was a Main Residence for CGT purposes so I was just checking with what your plans were.

[Cats_pyjamas]

I did similar over a marginally shorter time frame.

Lived in property 1.
Bought property 2, chain free, and moved in over a couple of months. Paid 15k additional stamp duty
Sold property 1, 6 months later.
Reclaimed stamp duty, just remember you need the unique transaction numbers for the purchase and sale iirc to enable the HMRC refund which took around 2 weeks to be refunded.

[B9]

Thanks all - affordability checks came back OK so should know by close today if our chain has fallen through

Just hope the property market doesn’t tank in the short period we’re holding two properties 😬

[MadCaptainJack]

Or Labour don't come up with some creative way to fk homeowners in order to further enrich feckless union members.