Buying another house, how is it usually done when you already own one?

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Forums › Finance and wealth management › Buying another house, how is it usually done when you already own one?

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Ultimate Geek

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#3118583 21-Aug-2023 14:11

David321:
concordnz: Yes, this is regularly done,
The banks provide what is called "bridging finance"
(and you pay this off when your original house is sold)
If I recall correctly - you only pay the 'interest' on the bridging finance, not the capital repayment.

Id also recommend talking to a Mortgage broker.
They are free & know which banks are best for your particular situation and location.

I've used a couple of good ones at Mike Pero Mortgages.

I have just looked into the Bridging finance after reading your reply its still on the Kiwi Bank website so hopefully its still an option! Looks ideal from the very little I know about it so far. Would it be correct to assume if our current house was worth $550,000 and the one we want is $750,000 we would pay interest on the $200,000 difference or the whole $750,000 total?

So we pay just the interest on the loan and then proper payments start once our house is sold? do they give a time limit to sell your house or any other conditions like that?

You pay interest on the full 750k,
Other conditions vary between banks, which is why I recommend a Mortgage Broker. (they know which banks are currently running with which conditions)

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cddt

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Ultimate Geek

#3118585 21-Aug-2023 14:13

David321:

With bridging finance, you pay interest only I think? if our house was worth $550,000 and we wanted one that cost $750,000 would we pay interest on the $200,000 difference or the entire $750,000?

The principle and interest payments start when you sell your house? Do the bank give you a time limit to sell your house?

You pay interest on the whole $750,000 during the bridging period, as this is how much the bank is lending you.

concordnz

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#3118586 21-Aug-2023 14:15

duckDecoy:
For what its worth. Mary Holm always recommends selling your place before buying a new one. If for whatever reason your house doesn't sell you are in a incredibly exposed position. Unlikely, but life shattering if it happens.

quote/

"I would add this: Please, please sell before you buy. In this market it might take many weeks for you to sell, and you don’t want to be stuck paying for two houses for a long period. That’s when people end up selling for a really low price, out of desperation.

Selling first also means you know exactly how much money you have to play with. And once you’ve sold, there should be a wide choice of homes to buy, in this slow market."

Bridging finance would be used to cover the gap from selling to buying.

I wouldn't follow Mary Holmes advise in this one,
It strongly depends on the individual circumstances. & you can miss out on 'the perfect home' if you wait to sell yours first.

Bridging finance is the opersite of what you have indicated.
It covers the time between 'buying new home' then 'selling original home' - (while you currently own both) .

gbwelly

1206 posts

Uber Geek

#3118616 21-Aug-2023 14:40

David321:

Our house is probably worth around $550,000, we are free hold,

I think you would be mad to sell a freehold home rather than rent it out. Obviously there are expenses when owning a rental such as maintenance, repairs, rates, insurance, income tax etc. But the largest expense is usually the mortgage on the rental property. That rent could be going towards the house you are living in, essentially your tenants would be paying off a portion of your new home.

Heck, there are probably other options involving a trust to move a portion of the new mortgage back to the rental, so if interest deductibility for rental income returns post election you can reduce your tax.

Talk to an accountant.

David321

342 posts

Ultimate Geek

#3118624 21-Aug-2023 14:53

gbwelly:

David321:

Our house is probably worth around $550,000, we are free hold,

I think you would be mad to sell a freehold home rather than rent it out. Obviously there are expenses when owning a rental such as maintenance, repairs, rates, insurance, income tax etc. But the largest expense is usually the mortgage on the rental property. That rent could be going towards the house you are living in, essentially your tenants would be paying off a portion of your new home.

Heck, there are probably other options involving a trust to move a portion of the new mortgage back to the rental, so if interest deductibility for rental income returns post election you can reduce your tax.

Talk to an accountant.

I would love to keep the house as a rental, however with a new house costing at least $750,000 for what we want, the weekly payments would be almost $1200 per week at todays rates and that's over 30 years!

I assume we would be $400 at most in the hand after insurance, rates and income tax etc from renting our place meaning we would be looking at $800 per week of our own income to service our new loan, just a little bit our of our reach Unfortuantly.

We would ideally get the new loan of just a couple of hundred thousand knocked down as quick as possible then look for a cheap rental to buy.

_David_

Handsomedan

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#3118635 21-Aug-2023 15:15

Something to remember is the deposit on the new property once you sign the S&P agreement - you pay around 10% of the sale price to the real estate agent who then holds it in trust and earns interest on the funds until settlement.

It's something that can sometimes be negotiated down. It's a small thing, but can make a purchase uncomfortable if you don't have the funds at hand to pay that deposit.

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Handle9

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#3118659 21-Aug-2023 15:51

Handsomedan:
Something to remember is the deposit on the new property once you sign the S&P agreement - you pay around 10% of the sale price to the real estate agent who then holds it in trust and earns interest on the funds until settlement.

It's something that can sometimes be negotiated down. It's a small thing, but can make a purchase uncomfortable if you don't have the funds at hand to pay that deposit.

The deposit is usually payable when the property goes unconditional. I would refuse to pay any deposit up until that point.

Also if you are selling never ever accept a deposit lower than the REA fees. Once the property goes unconditional you are liable to pay the REA, even if the property doesn’t settle. It’s a shitty situation to be in, at least with a decent deposit you can pay off the REA, resell the property and have some money to litigate against the first buyer for your other losses.

allio

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#3118663 21-Aug-2023 15:59

We did this last year - sold our existing house to purchase a new build. I assumed it would be straightforward to bridge to take the stress out of the transaction but were told by our bank (ANZ) that they no longer do "open" bridging and only do "closed" bridging, i.e. we needed to have accepted an unconditional offer on our existing house. This meant we couldn't settle on the new house until after we unconditionally sold the old one. In theory you could sell your old place first with a long settlement period, try to buy and settle the new house (with bridging) within that period, then settle on the old house and close your bridging loan. This means only moving once, all going well. The main downside is that buyers don't want long settlement periods in the current market - when house prices are dropping 1-2% per month, why would you agree on a price today when you won't get to move in for two months? Also, while it didn't apply to us with our new build, you would also have an unavoidable risk that you won't be able to find and/or settle on a new house before your settlement day on the old house, meaning you'd be moving out with nowhere to go. For me with our two young kids I just wasn't interested in any option that had that kind of uncertainty.

We ended up managing to arrange settlement for both houses to be on the same day, and additionally negotiate moving into the new house a few days before settlement day, but it was unbelievably stressful and I can't believe there wasn't a better way to do it. I still wonder if I missed something obvious because I can't imagine most people move twice. Our moving cost was $2300 for a 3 bedroom, 100 square meter house moving less than 1km away!

mattwnz

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#3118666 21-Aug-2023 16:12

concordnz:
duckDecoy:

For what its worth. Mary Holm always recommends selling your place before buying a new one. If for whatever reason your house doesn't sell you are in a incredibly exposed position. Unlikely, but life shattering if it happens.

quote/

"I would add this: Please, please sell before you buy. In this market it might take many weeks for you to sell, and you don’t want to be stuck paying for two houses for a long period. That’s when people end up selling for a really low price, out of desperation.

Selling first also means you know exactly how much money you have to play with. And once you’ve sold, there should be a wide choice of homes to buy, in this slow market."

Bridging finance would be used to cover the gap from selling to buying.

I wouldn't follow Mary Holmes advise in this one,
It strongly depends on the individual circumstances. & you can miss out on 'the perfect home' if you wait to sell yours first.

Bridging finance is the opersite of what you have indicated.
It covers the time between 'buying new home' then 'selling original home' - (while you currently own both) .

Lets just say that currently it is very difficult to sell in for many, esp with the rising interest rates and OCR, which could still go higher according to some banks. Selling first is probably the most conservative option, and potentially allows an clean deal when buying. But you can build into that deal that you would like to remain for a period of time afterwards, and push out the settlement date until you buy . You may also be able to rent it off the buyer until you have purchased another. If the market is difficult to sell in, then it could be easy to buy in, as sellers will be after cash buyers or buyers without a chain. Some also maybe willing to take a lower offer as a result. So I can see Marys point of selling first in todays market and with their circumstances. But a lot of luck is involved with buying and selling, and buyers and sellers are reliant on other people.

The market in NZ has changed a lot since last year.

alasta

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#3118668 21-Aug-2023 16:13

allio:

We did this last year - sold our existing house to purchase a new build. I assumed it would be straightforward to bridge to take the stress out of the transaction but were told by our bank (ANZ) that they no longer do "open" bridging and only do "closed" bridging, i.e. we needed to have accepted an unconditional offer on our existing house. This meant we couldn't settle on the new house until after we unconditionally sold the old one.

This is pretty much what my mortgage broker recently told me, which makes bridging finance seem pretty useless to be honest.

I think my strategy will be to pay off the mortgage on my existing place before I consider moving anywhere. I assume that would put me in a financial position where I can go through the normal mortgage application process to obtain enough capital to hold both the old and new homes for at least a few months.

mattwnz

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#3118670 21-Aug-2023 16:16

Handle9:
Handsomedan:

Something to remember is the deposit on the new property once you sign the S&P agreement - you pay around 10% of the sale price to the real estate agent who then holds it in trust and earns interest on the funds until settlement.

It's something that can sometimes be negotiated down. It's a small thing, but can make a purchase uncomfortable if you don't have the funds at hand to pay that deposit.

The deposit is usually payable when the property goes unconditional. I would refuse to pay any deposit up until that point.

Also if you are selling never ever accept a deposit lower than the REA fees. Once the property goes unconditional you are liable to pay the REA, even if the property doesn’t settle. It’s a shitty situation to be in, at least with a decent deposit you can pay off the REA, resell the property and have some money to litigate against the first buyer for your other losses.

I find it amazing that REAs still earn such a high % fee in NZ when much is now done online, and most buyers will find properties online. When agents used to do a lot more marketing work before teh internet. As a buyer I would also suggest that you never pay a deposit that is much higher that the REA fees that the seller will be paying.. Often the REA will prefill that amount in with quite a high amount, but you can change it to a lower amount.

Handle9

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#3118671 21-Aug-2023 16:16

I’ve bought/sold and settled on the same day and sold, rented then bought.

If I was in your situation I’d sell them buy. If I had to rent I’d rent. It’s a difficult market and a cash buyer with certainty has power.

Moving twice is a pain but in the context of things it’s no big deal. Keep your eye on the big picture and it’ll be fine.

Handle9

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#3118677 21-Aug-2023 16:22

mattwnz:
Handle9:

The deposit is usually payable when the property goes unconditional. I would refuse to pay any deposit up until that point.

Also if you are selling never ever accept a deposit lower than the REA fees. Once the property goes unconditional you are liable to pay the REA, even if the property doesn’t settle. It’s a shitty situation to be in, at least with a decent deposit you can pay off the REA, resell the property and have some money to litigate against the first buyer for your other losses.

I find it amazing that REAs still earn such a high % fee in NZ when much is now done online, and most buyers will find properties online. When agents used to do a lot more marketing work before teh internet. As a buyer I would also suggest that you never pay a deposit that is much higher that the REA fees that the seller will be paying.. Often the REA will prefill that amount in with quite a high amount, but you can change it to a lower amount.

As a vendor if the buyer can’t pay a reasonable deposit (circa 10%) it’s a hard no from me. The risks are too high and it makes them a settlement risk. I’m liable for a ton of costs at the point it goes unconditional and they need to be incentivised to settle. The vendor can sue to chase additional costs but a reasonable deposit gives a lot more certainty.

I’d be even more wary in the case of back to back contracts.

cddt

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Ultimate Geek

#3118707 21-Aug-2023 17:14

Handle9:

As a vendor if the buyer can’t pay a reasonable deposit (circa 10%) it’s a hard no from me. The risks are too high and it makes them a settlement risk. I’m liable for a ton of costs at the point it goes unconditional and they need to be incentivised to settle. The vendor can sue to chase additional costs but a reasonable deposit gives a lot more certainty.

I’d be even more wary in the case of back to back contracts.

I accepted a 5% deposit last year, and when it came time to settle I could tell the buyer was regretting his purchase. It was extremely stressful as it sounded like he was trying to find an excuse to walk away from the purchase, forefeiting his deposit, but leaving us in the lurch having purchased another house.

I would never accept less than 10% in future.

mattwnz

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#3118708 21-Aug-2023 17:14

Handle9:

As a vendor if the buyer can’t pay a reasonable deposit (circa 10%) it’s a hard no from me. The risks are too high and it makes them a settlement risk. I’m liable for a ton of costs at the point it goes unconditional and they need to be incentivised to settle. The vendor can sue to chase additional costs but a reasonable deposit gives a lot more certainty.

I’d be even more wary in the case of back to back contracts.

I did a low deposit, but it was a very long settlement due to the seller wanting a long settlement. It was a new build that the builder was living in while selling and finding a new property, and they required it to be a long settlement, so they accepted a low deposit to essentially just cover the agents fees. I wasn't going to tie up that much money in a deposit for months and months with no interest. But it all depends on the deal and contract.

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