upgrading options in the wake of the credit crunch
Upgrading your home is one of life’s greatest achievements but managing the transition has become a whole lot more stressful in a thinner market plagued with difficulties in obtaining credit.
Just a year ago, many upgraders would have rolled the dice in an attempt to time the buying and selling process in their favour. But the risk of selling for lower than expected has would be upgraders slowing things down – a lot.
So what are the options?
If your income is strong, and you can prove to a lender that you could take on 2 mortgages, this is probably one of the most straight forward options there are. This option may even involve including future rental income to service the loan. The back up position becomes that if the property doesn’t sell, you rent it out. Of course this comes with its own set of complexities on the other side in terms of managing a sale with a tenant in the property.
The other stress-free, though time consuming option, is to sell first and move out, either into a rental, or if you’re lucky enough, into an alternative option such as with parents or a family holiday home.
The third option is to consider Bridging Finance. Bridging generally involves paying a full standard home loan rate for the period of time that 2 loans are required. However the affordability of the loan is only assessed on a calculated “end debt” position. These calculations involve a discount in case the home is sold for a lower amount, and some other assumptions stacked in the lenders favour, however when the process is over, the loan reverts to a discounted home loan based on whatever the loan amount ends up being after the sale transaction has been completed.
The cost of bridging finance all depends on the value of the property being sold. Here’s an example where it would be more expensive than renting, but may be a lot less hassle in moving around. A family is looking to purchase a new property for $1.4m. They expect to sell their current home for approximately $1m and have a $500,000 mortgage remaining. They could expect to pay around $23K over a 6 month bridging period which would be equivalent to $885pw in rent. Bear in mind this cost is actually capitalised into the end loan, so is favourable from a cashflow perspective. There are risks of course, such as the final sale price and time taken to sell.
For more tips & advice, contact Lanie Conquest at Surf Coast Finance
With over 25 years’ banking & financial services experience, she helps local families & businesses make smart financing decisions.
M: 0418 938 646