With the recent royal commission and property prices currently falling at a spectacular rate, home owners may be questioning if they should sell up or stay put. Here’s how to figure out what you should do.
In addition, the Labor Party’s proposed changes to negative gearing if they win the upcoming election have property owners looking to move quicker to get ahead should these changes be implemented.
When deciding whether to buy a new property first and then sell your current property, or vice versa, it is important to do your research and have a clear understanding of the current market and your personal financial situation. Here are three tips to help you decide if buying or selling first will suit you.
Regardless of if you wish to sell first or buy first, you must aim to reduce your current mortgage as much as possible. While the royal commission won’t directly affect housing prices, it has caused banks to tighten their lending.
This means access to existing funds is increasingly important. Reducing your mortgage allows the equity in your property to be converted into cash to help pay for your new property purchase.
To reduce your mortgage you can:
Once you have worked to reduce your mortgage, you can talk to your bank or broker about your borrowing capacity. This is where you will be able to decide to buy first and then sell, or if you will need to sell first to release your funds to go towards your next purchase.
Currently, I believe we are in a buyer’s market. This means housing prices are low as there is reduced demand for property. Tightened lending from banks means less people applying for home loans. This makes it easier for buyers who are prepared to make a purchase.
In a buyer’s market, my advice is to sell your property first. The reason is to avoid paying interest on two loans.
If you need to sell first, one of the biggest risks you will face if there is an extended gap between sale and purchase is that rising property prices will mean you get less for your money as time goes by.
In a seller’s market, buy first as your property should be sold quite quickly. If you do decide to buy first, consider negotiating a longer settlement period to minimise the time you are having to carry the debt for both properties.
When looking at all the figures involved, be conservative with the potential sale of your current property. Many people have come unstuck when they buy first because they have unrealistic expectations.
Try to avoid personal feelings clouding your judgement. It is important to remain objective and view your property from a prospective buyer’s viewpoint.
Make sure you have a “Plan B”. If your current property doesn't sell for the price you want, you should consider:
Overall, if you sell first, you can extend the settlement date to give yourself more flexibility to find another property.
For those who are financially capable, buying your new property first has its advantages. Firstly, it avoids having to rent during the interim period.
Secondly, many buyers find their dream property prior to selling, or even prior to contemplating selling their home. This is sometimes what spurs them on to make a change.
As such, purchasing before you sell may be the only way to ensure you don’t miss out on that special property.
In this case, you may need to take on bridging finance. If you do go down this path, you can end up being committed to paying off loans for two properties until your existing property sells, which can be costly.
Bridging loans are designed to cover the full financing of your new property until you sell your existing home and remove all, or the majority of, your debt.
They are secured through your existing and new properties and are offered at similar rates to a variable home loan. Some are intended to be short-term loans, while others are long-term.
If you require bridging finance, it is ideal to go through your current lender. If you choose a new lender, they will need to take on your existing loan, which will mean paying out your existing lender.
If this happens to be a fixed loan or one with a low introductory interest rate, switching lenders may leave you paying a large exit fee.
Whether you choose to buy first or sell first, the choice is ultimately up to you and your personal circumstance. Remember that you don’t have to make the decision alone. Seeking advice from your bank or broker can help shed light on what may be the right move for you.