How to buy a house at auction when you already have a mortgage

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Forums › Finance and wealth management › How to buy a house at auction when you already have a mortgage

insane

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#290469 13-Nov-2021 21:40

Perhaps there is an obvious answer, but I wanting to understand the mechanics of purchasing a new house (upgrade) when you already have a mortgage on your first/only home.

When I purchased my first home I simply got pre-approval from the bank with zero conditions which made purchasing our first home fairly simple.

Fast forward 4 years and I'm interested to upgrade, but would need to sell my current house to afford anything in Auckland.

Does that simply mean I'm limited to negotiation and pre-auction offers?

Or is there another way to get pre approval that takes into account me selling my current home? I.e sell mine first with lengthy settlement date and hope I can find another quickly before prices jump again?

And given prices are where they are, do people get new loans just to help cover the deposit on the next place?

Thanks!

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Mad Scientist
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#2812401 13-Nov-2021 21:44

I think you need to speak to a mortgage broker.

Basically talk to the bank to get a bridging loan of some sort.

In a rising market you buy first then sell, or buy and sell at the same time.

Involuntary autocorrect in operation on mobile device. Apologies in advance.

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Handle9

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#2812404 13-Nov-2021 21:49

Bridging finance. Banks are generally fine with a few months but YMMV.

billgates

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#2812406 13-Nov-2021 21:51

In an auction you need to be unconditional which means you need to have the $$ ready on the day of the auction. You cannot have any conditions like sell my home first then I buy yours in an auction. The risk of losing the 10% winning auction deposit is on you if you cannot sell your current home before the settlement date if you want to take this risk. You do not want to go to auction if you do not have the $$ ready which means yeah you need to sell your current home first.

Do whatever you want to do man.

insane

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#2812407 13-Nov-2021 22:01

Batman:
I think you need to speak to a mortgage broker.

Basically talk to the bank to get a bridging loan of some sort.

In a rising market you buy first then sell, or buy and sell at the same time.

Thanks Batman, broker was my next step, just knew I'd get answers here first. Good point on getting the order right!

Does bridging finance include enough to also bridge for the deposit?

billgates:
In an auction you need to be unconditional which means you need to have the $$ ready on the day of the auction.....

Yup understand that, just not 100% sure on the options that might exist to proceed. Many others must be doing it too so know it can be done.

nova

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#2812409 13-Nov-2021 22:15

insane: Does bridging finance include enough to also bridge for the deposit?

Yes, our bank was happy with that, though depends on how much equity you have. We recently bought at auction, and are currently selling our house. Bridging finance was fairly straight forward, we need to sell within 6 months of drawing down the loan. The loan is interest only, and for us it was at the floating rate minus 0.5%, so is not as expensive as I expected bridging fiance to be. We did have very good equity in our current house. We got the same discount on the floating component of our mortgage (0.5%), but fixed most of it at 3.99% for 5 years. Already rates have gone up quite a bit in the last month, so saved a bit there, but won't know till we sell whether the strategy of buying first will pay off or not. Personally I think the heat will come off the market early next year if not before.

The advice we got from other banks was that if we needed bridging finance that our best bet was with our current bank, which is what we did.

rogercruse

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#2812452 14-Nov-2021 07:39

We explained via email what we wanted to do to our bank, that is: borrow enough to finance a new build using our existing (mortgage free) property as security.

The original mortgage was with them, so they simply re-opened that mortgage to provide the finance. The saved on paperwork and stress as this was all agreed in-principle during our initial phone call..

As the build phases (and they payments) for the new build progressed, we simply forwarded the details to Donna (she was our point of contact) and she released the funds.

Everything was managed by phone calls and emails.

So, speak to your mortgage provider and / or bank. It really was that simple for us.

scuwp

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#2812488 14-Nov-2021 09:14

If you have enough equity you could use that to leverage the loan against the second property. That way you could have the loan ready to draw down for the new house. Then sell your existing house. Or specifically get bridging finance. You would need to prove you have enough income to service both, and there is a risk you could get stuck with both. Alternative could be to rent out your current house for a while, but then you get into a new realm of issues as a landlord and new government restrictions.

There are so many ways to structure this depending on your income and equity, and what your aim actually is. I agree with others, you need to be speaking to a mortgage broker or accountant that specializes in property.

Always be yourself, unless you can be Batman, then always be the Batman

Mehrts

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#2812560 14-Nov-2021 12:37

Also be very mindful that the requirements for loan top-ups and other lending criteria are now being picked through with a fine-toothed comb by the banks.

What used to be a very simple task has now blown into a massive ordeal.

I recently went to redraw $5k from my floating loan for property improvements since I had paid off plenty of the principle, and I had to jump through the exact same hoops as applying for a full-blown loan. That was with BNZ. Other banks will follow if they're not already doing the same now.

I've redrawn similar amounts of funds a couple of times previously with no hassles at all, and was shocked to see how much harder the process is now.

From now on, I'm going to hold more funds in my everyday account instead of throwing it into the home loan and pulling it out when required.

alasta

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#2812562 14-Nov-2021 12:42

Mehrts:

From now on, I'm going to hold more funds in my everyday account instead of throwing it into the home loan and pulling it out when required.

Given that you're with BNZ I would suggest looking into getting an offset arrangement on your floating mortgage ('Total Money') if you haven't already. That way you can 'pay off' the loan for the purpose of reducing the interest chargeable, but will have the funds at your disposal if you need them.

Batman

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#2812564 14-Nov-2021 12:47

Mehrts:

Also be very mindful that the requirements for loan top-ups and other lending criteria are now being picked through with a fine-toothed comb by the banks.

What used to be a very simple task has now blown into a massive ordeal.

I recently went to redraw $5k from my floating loan for property improvements since I had paid off plenty of the principle, and I had to jump through the exact same hoops as applying for a full-blown loan. That was with BNZ. Other banks will follow if they're not already doing the same now.

I've redrawn similar amounts of funds a couple of times previously with no hassles at all, and was shocked to see how much harder the process is now.

From now on, I'm going to hold more funds in my everyday account instead of throwing it into the home loan and pulling it out when required.

i heard it was a directive from the reserve bank, but i could have recalled wrong

Involuntary autocorrect in operation on mobile device. Apologies in advance.

Mehrts

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#2812565 14-Nov-2021 12:47

It's hardly ever that I need to redraw funds, so I'm not needing the features of the offset loan, plus it also has a higher interest rate compared to what I have at the moment.

Mehrts

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#2812570 14-Nov-2021 12:54

Batman:
i heard it was a directive from the reserve bank, but i could have recalled wrong

Ultimately it stems from an amendment to the Credit Contracts and Consumer Finance Act (CCCFA) which has come into play on October 1st. But I imagine it'll be put into force by the RBNZ.

Goosey

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#2812588 14-Nov-2021 13:34

Banks just got tougher in the past month regarding deposits and servicing of loans.

Best you seek out a mortgage adviser who knows the current challenges and deals with multiple lenders (banks).

insane

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#2812590 14-Nov-2021 13:48

@rogercruse That scenario is quite different in that you were mortgage free. It's almost like getting a first home, but easier as you don't need to put up a deposit. I only have about 50% equity in my current home, so need to use all of that to 'upgrade' relatively speaking.

Renovating a 1970's home has been an experience, with highs and lows, but at this point in life, I'd rather be spending my free time with family, and not fixing something.

Happy to have a smaller section where the house placement is better and allows roughly the same usable free space.

insane

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#2812593 14-Nov-2021 14:00

scuwp:
If you have enough equity you could use that to leverage the loan against the second property. That way you could have the loan ready to draw down for the new house. Then sell your existing house. Or specifically get bridging finance. You would need to prove you have enough income to service both, and there is a risk you could get stuck with both....

Yeah thats a good point, would easily have enough equity in current home to keep 20% in first home and enough for ~25% deposit on next one (in the range I'm willing to upgrade to). Wifey is also working again (earns similar to me) so servicing would be OK.

Could potentially swing an upgrade, and cheaper 2nd home.... The thought of being a landlord puts me off though! But at least my plan sounds doable - let's see what the broker has to say :)

Thanks for your help all!!

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