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How to take the second step on the property ladder
If you’re already a homeowner and you’re thinking about buying your second home, you’re in good company! 2014 was the best year for ‘second-steppers’ since 2007, with 365,400 homeowners moving house across the UK.
You might think that as you’ve already bought a house, it’ll be easy the second time round – you won’t make any of the same mistakes as last time! While that might be true, buying a second house comes with its own fresh set of challenges – so read on to find out how to make the move as smooth as possible.
Give your finances the once over
Around six months before you look to move, check your credit report with Experian, Equifax or Callcredit to ensure everything looks as it should. Here’s what to look out for. It could also be a good idea to review your spending as new lending “affordability” rules that were introduced last year as part of the Mortgage Market Review mean that lenders must now take away regular spending from an applicant’s monthly income before working what will be left for mortgage payments. So, if you’re paying out for gym membership you never use, or magazine subscriptions, cancel them as it will affect how big a mortgage you’re offered.
Value your home
Next you’ll need to get your home valued so you can tell how much it’s worth and how much equity you have in it. In a nutshell, if your house is worth £100,000 but you’ve still got £60,000 of the mortgage to pay off, that means you’ve got £40,000 of equity in it.
This is important to know early on in the process as you can use this equity as a deposit for your new house and it’ll give you an idea of how big a mortgage you can afford on your next property.
Getting a mortgage
If you’ve not been in your first home that long or have not paid off much of your current mortgage, there might not be enough equity in your home to put down as a good size deposit on your new property. If you’re trying to move up the housing ladder and buy a more expensive property then you’ll need to factor this in as you’ll need a bigger deposit. Generally speaking, the best mortgage deals are available for those with a deposit of 20% or more. If the equity in your current home isn’t enough to give you access to decent mortgage deals on the new property, you can always look to add to it with any additional savings you’ve been able to build up.
Of course, if you’re staying about the same in terms of property value, or trading down, you’ll probably have enough equity in your home to cover the deposit for the new one.
If you’re on a really great deal with your existing mortgage lender, you may want to speak to them about “porting” your existing mortgage to your new property – some lenders will allow you to do this. Otherwise it makes sense to shop around to find the best mortgage deal – a broker, such as Ocean Finance, could help search the market for you.
Factor in the costs
Remember, it’s not just the cost of the deposit you’ll have to foot when moving. You’ll have to pay Stamp Duty Land Tax on properties worth over £125,000 as well as removal costs, estate agents fees, the deposit on the day you exchange contracts (usually 10%) and survey costs. This can all add up and mean that moving house might be more expensive than you thought. Find out more about the cost of moving here.
When you’ve priced it all up, you might decide that you need to save for longer to afford all of the costs. That’s okay – buying a new house isn’t something you should rush into and make sure you only do it when you’re sure you can afford it.
Remember – as a second-stepper, you’re not just a buyer, you’re also a seller. This means you’ve got all of the problems of buying a house as well as the extra headaches that selling brings. You’ll usually have to complete the sale of your house and the new property on the same day, which can lead to some confusion!