It’s the age-old question that has plagued generations forever: do you buy or sell your home first?
Deciding whether to buy a new home before selling your current one is a dilemma many homeowners face. Each option has its own set of challenges: buying first can mean financial strain from holding two properties at once, while selling first might leave you scrambling for a new home or paying for temporary accommodation.
This is where a bridging loan can make all the difference. By providing flexible, short-term funding, a bridging loan can ease the pressure, allowing you to buy or sell at the right time without sacrificing financial stability. Here, we’ll explore the pros and cons of buying before selling (and vice versa) and how a bridging loan can help you make the best move for your situation.
Scenario 1: Buying first
Buying a new property before selling your current one can seem like the ideal approach – you can take your time to find a home that meets all your needs and even make necessary renovations or adjustments before moving in. However, it’s not without its challenges.
In favour of buying first:
- You can enjoy flexibility and reduced pressure. When you buy first, you have the flexibility to wait for the right home rather than feeling pressured to settle on a property just because you’ve already sold. This can be especially beneficial if you have specific requirements or are looking in a competitive market where finding the perfect home might take longer.
- You have more control over moving. Buying first also allows for a smoother transition. You can prepare your new home (whether that means deep cleaning, decorating, or renovating) without the stress of needing to move in right away. This can make the move less disruptive, especially if you have a family or a busy work schedule.
Drawbacks:
- You may experience financial strain of dual property ownership. The main drawback of buying before selling is the financial burden. Owning two properties simultaneously means managing two mortgages, or a mortgage and a bridging loan, which can strain your budget and cash flow.
- There’s the pressure to sell quickly. Holding two properties can add pressure to sell your current home quickly, especially if you’re relying on the sale proceeds to cover part of the new home’s cost. In a slow market, this could mean accepting a lower offer just to ensure the sale goes through, which may not be ideal.
How a bridging loan can assist if you buy first, then sell
A bridging loan offers a temporary financial cushion, allowing you to secure the funds needed for the new home while covering the expenses of your current property. With a bridging loan in place, you don’t have to rush the sale of your old property and can take the time to get the best possible price. Once your current home is sold, you can use the proceeds to repay the loan, easing the transition and avoiding the need to juggle two mortgages for an extended period.
Scenario 2: Selling first
Selling your existing property before buying a new one provides a sense of financial security that only money can buy (pardon the pun.) After all, you know exactly how much money you have available for your next home. However, it can also create a bit of uncertainty, especially if you haven’t found a suitable new property yet.
In favour of selling first:
- You get a clear budget and financial stability. When you sell first, you avoid the financial strain of owning two properties at once. You’ll know the exact proceeds from the sale, which can help you establish a clear budget for your next home. This also means you won’t need to rely on short-term financing or face the pressure of making quick repayments.
- There’s less risk in a slow market. Selling first can be advantageous if the property market is slow or uncertain. By securing the sale of your current property before buying, you won’t be stuck holding two homes if the market takes a downturn, reducing the risk of potential financial strain.
Drawbacks:
- There’s added pressure to find a new home quickly. One of the biggest challenges of selling first is the time pressure to find a new home, especially if you want to avoid temporary accommodation. This urgency can lead to compromises or settling for a property that doesn’t fully meet your needs simply because you need a place to move into quickly.
- The cost and hassle of temporary accommodation. If you sell first but can’t find a new home right away, you may need to arrange temporary accommodation. This can be costly and disruptive, as moving twice (once into temporary housing and again into your permanent home) requires additional expenses and effort.
How a bridging loan can assist if you sell first, then buy
In this scenario, a bridging loan can bridge the gap between selling your old home and buying your new one, covering the costs of temporary accommodation or other interim expenses while you wait for the right property to come along.
This financial flexibility allows you to approach the home-buying process with less stress, knowing you have a cushion in place if the perfect home takes a bit longer to find. A bridging loan provides the time you need to make the best decision for your future home rather than rushing to avoid being ‘in-between’ for too long.
Key factors to consider when making the choice
Deciding whether to buy or sell first is a significant choice, and there isn’t a one-size-fits-all answer. At AxJ, we can’t make up your mind for you. However, we can suggest some options to help determine your best path forward. Here’s some things to consider.
- Market conditions
Understanding market conditions is key. In a seller’s market, homes sell quickly and often above-asking price, making it safer to sell first, then buy, with funds ready for a competitive offer. In a buyer’s market, with more homes available, buying first can be advantageous, allowing time to find the perfect home without rush. Here, a bridging loan can cover the new purchase while waiting for the right buyer for your current property.
- Financial preparedness
Consider your finances carefully. Can you handle the costs of owning two properties, like dual mortgages, utilities, and maintenance? A bridging loan can ease this burden, but ensure you have a clear exit strategy. Assess your home equity, expected sale proceeds, and how quickly you can sell.
- Timing and your personal situation
It goes without saying but timing often depends on personal circumstances. If you need to relocate quickly for work or family reasons, a bridging loan can give you flexibility for a smooth transition. Think about how buying or selling might impact your family, work, and stress levels. While some prefer minimal disruption with a bridging loan, others might find a temporary rental less stressful.
- Your appetite for risk
Knowing your risk tolerance is key. Buying first involves more financial uncertainty, as you’re committing to a new property without a guaranteed sale. If you’re comfortable with this and have resources, a bridging loan can help. For a conservative approach, selling first offers more certainty, giving you a clear budget for your next home. This can bring peace of mind, especially with a bridging loan to cover interim costs.
Secure your next move with AxJ’s bridging loan solutions
At AxJ Finance Brokers, our bridging loan specialists can offer you the professional guidance you need to make a fully informed decision, whether you choose to buy or sell first. We can offer insights into local market conditions, as well as help you understand your financing options, potential costs, and strategies for minimising risk.
Contact us today to explore how a bridging loan can simplify your next move. Let’s move forward with confidence together.