Short term mortgage, bridging and 0% credit cards

[Clariman]

This is partly a 'think out loud' post, but I would be interested in opinions and ideas. We have decided to move house in 2023 and have put a reserve on a new build which has created a minor cash flow dilemma. Although we had been mulling over the possibility of moving for a while, we had made no firm plans so it was likely to be back end of 2023 or into 2024 if it ever happened. However, having found the right house and decided to do it, the move will be early Summer.

We have no mortgage on our current home and will not need one for the new purchase which will be funded from the sale of home with additional money from savings. However, most of our savings are tied up in ISAs and Fixed Rate Bonds, so are not readily available to fund the gap or pay for Stamp Duty. Two bonds mature in October 2023 and they should cover the money needed. So I could either take the money out of them early if I can (with penalty payments) or borrow some money.

Ideally we would like the ownership of the properties to overlap for a week or two so that we can get carpets etc put in. However that would mean a significant bridging loan for which an arrangement fee would normally be in 5 figures.

Options:
1. Use bridging loan for both i.e. to pay for the overlap, pay most of it off when the proceeds of our sale are in and then pay off the rest a few months later.
2. Use bridging loan for the overlap only and use 0% credit cards to pay for the rest (if we can get sufficient credit limits).
3. Use bridging loan for the overlap only and take money out of Bonds and pay any penalties
4. Use bridging loan for the overlap only and take money out of ISAs and lose some ISA tax relief forever
5. Move out and put stuff in storage so that we don't need bridging, and then fund the gap using one of the above methods
6. Could taking out an offset mortgage help - even though we don't need one??
7. Anything else?

To a large extent this is a psychological issue. Taking money out of ISAs is anathema to me, but then what use is money in ISAs if you don't eventually spend some of it! First world problems and we are lucky to be in this financial position.

Thanks for listening and for any ideas.
C

[DrFfybes]

6. Could taking out an offset mortgage help - even though we don't need one??

What we have done was to mortgage the new house on an offset, but last time we did a "no early redemption penalty" deal remortgaging our existing property (which made us cash buyers for the new one). Use an advisor as they tend to have access to non standard arrangements.

For our last move we remortgaged on a variable 0.5% above base rate for 2 years (we could have had 0.35% but with a redemption penalty). The mortgage arranged was a BTL one, as one original option was to buy house 2 and let our existing property ,or the rent out new one until we were ready to move. In the end the renting out didn't happen due to mum's health and Covid, however we could just as easily have 'changed our mind'.

The fee was circa £1k, and we put the cash released into instant access and short notice savings. At one point we were earning more than we were paying in interest, although that is unlikely now. The only hazard was we put some in premium bonds, and when we wanted it back there is a short window at the end of the month when it is already entered in the next draw and cannot be accessed until after the draw.

Paul

[Clariman]

6. Could taking out an offset mortgage help - even though we don't need one??

What we have done was to mortgage the new house on an offset, but last time we did a "no early redemption penalty" deal remortgaging our existing property (which made us cash buyers for the new one). Use an advisor as they tend to have access to non standard arrangements.

For our last move we remortgaged on a variable 0.5% above base rate for 2 years (we could have had 0.35% but with a redemption penalty). The mortgage arranged was a BTL one, as one original option was to buy house 2 and let our existing property ,or the rent out new one until we were ready to move. In the end the renting out didn't happen due to mum's health and Covid, however we could just as easily have 'changed our mind'.

The fee was circa £1k, and we put the cash released into instant access and short notice savings. At one point we were earning more than we were paying in interest, although that is unlikely now. The only hazard was we put some in premium bonds, and when we wanted it back there is a short window at the end of the month when it is already entered in the next draw and cannot be accessed until after the draw.

Paul

Thanks Paul, that is very similar to what we did when we bought our current home 15 years ago. We took a base rate plus 0.85% (IIRC) offset mortgage and paid it off early. I was wondering if it was worth doing.

[SebsCat]

We financed the purchase of our current home with savings and a current account mortgage (essentially an offset one) and then covered the full amount a couple of months later when the sale of our previous one completed.

[Adamski]

We moved into a new build this year. We had an overlap of 6 weeks. With new builds often delays, so best to leave plenty of wiggle room.

One good thing was the additional stamp duty only took 3 weeks to be refunded (from when I claimed). The solicitor said it could take months. You need a reference number off the solicitor, and can only claim after it's all done. It was easy to claim myself and was a pleasant surprise to receive the money back in a few weeks, rather than months, as was expecting.

One negative is that you'll have to pay two lots of bills, council tax (full second charge), gas/elec/water (minimal) for the crossover period. We had no bins in the new house but were paying 2 lots of council tax for a while! £400 per month for no bin collection!

edit- I'd personally try to avoid storage/renting/Airbnb at all costs.

I'd work out the sums of raiding your savings versus a mortgage, I would have thought mortgage is the more expensive option. That's just a feeling, when you add up all the fees and interest, short term mortgages are expensive, others probably disagree.

[bloom]

To a large extent this is a psychological issue. Taking money out of ISAs is anathema to me, but then what use is money in ISAs if you don't eventually spend some of it! First world problems and we are lucky to be in this financial position.

If your ISAs are 'flexible' you can take the money out and replenish them before the end of the tax year.

[Clariman]

One good thing was the additional stamp duty only took 3 weeks to be refunded (from when I claimed). The solicitor said it could take months. You need a reference number off the solicitor, and can only claim after it's all done. It was easy to claim myself and was a pleasant surprise to receive the money back in a few weeks, rather than months, as was expecting.

What and why would stamp duty be refunded? I don't understand this bit of your answer. Thanks

[Clariman]

To a large extent this is a psychological issue. Taking money out of ISAs is anathema to me, but then what use is money in ISAs if you don't eventually spend some of it! First world problems and we are lucky to be in this financial position.

If your ISAs are 'flexible' you can take the money out and replenish them before the end of the tax year.

Ooh good point. I didn't know that. Does that apply when you have multiple ISA years in the one product or is it just the current year's amount can be taken out and put back in?

[Adamski]

What and why would stamp duty be refunded? I don't understand this bit of your answer. Thanks

I bought a new home, and staggered my purchase so owned two houses for two months.

So I had to pay additional stamp duty on the new home purchase, 3% of purchase price. This is extra stamp duty you pay, and later claim back. You then claim that back from hmrc after your house sale on your first home goes through.

That's what you do if you want to avoid renting or Airbnb.

[Lootman]

I'd personally try to avoid storage/renting/Airbnb at all costs.

At all costs?

May I ask why you feel so strongly about that? Particularly regarding Airbnb?

[Clariman]

What and why would stamp duty be refunded? I don't understand this bit of your answer. Thanks

I bought a new home, and staggered my purchase so owned two houses for two months.

So I had to pay additional stamp duty on the new home purchase, 3% of purchase price. This is extra stamp duty you pay, and later claim back. You then claim that back from hmrc after your house sale on your first home goes through.

That's what you do if you want to avoid renting or Airbnb.

Thanks for the explanation. If you wanted to have the houses overlap by just a couple of weeks would you need to pay additional stamp duty?

[mc2fool]

To a large extent this is a psychological issue. Taking money out of ISAs is anathema to me, but then what use is money in ISAs if you don't eventually spend some of it! First world problems and we are lucky to be in this financial position.

If your ISAs are 'flexible' you can take the money out and replenish them before the end of the tax year.

Ooh good point. I didn't know that. Does that apply when you have multiple ISA years in the one product or is it just the current year's amount can be taken out and put back in?

In theory multiple, as much as you like as long as you replace it back into the same ISA in the same tax year. But not all ISAs are "flexible" and banks/building socs may impose their own rules on top. Here's MSE on flexible ISAs, including lists of who does and doesn't offer them. However, the bottom line is that you'll have to check your own providers' Ts&Cs.

https://www.moneysavingexpert.com/savings/flexible-isas/

[Clariman]

In theory multiple, as much as you like as long as you replace it back into the same ISA in the same tax year. But not all ISAs are "flexible" and banks/building socs may impose their own rules on top. Here's MSE on flexible ISAs, including lists of who does and doesn't offer them. However, the bottom line is that you'll have to check your own providers' Ts&Cs.

https://www.moneysavingexpert.com/savings/flexible-isas/

Thanks for that and the link. Based on MSE's list I don't think any of our ISAs are flexible

[Dod101]

Clariman is of course assuming that his current house sells in a timely manner and not only that but that the completion date (If he lives in Scotland that is not I think the legal term) will fit in exactly with the purchase date for the new build. I have not bought a new build for about 50 years but I would have thought that the chances of everything working to plan are not very high. Furthermore, even in Scotland, there now seems to be almost endless chains.

From that, I would be building in maximum flexibility. The one thing you cannot control is the completion date for the new build. They are really two quite separate transactions, unlike the conventional chain. Personally, in the current climate, I would be concentrating on selling my current house and would be prepared to be very flexible about the entry date. Then I would be prepared to move out before the new build is ready into rented accommodation. That gives time to get carpets laid and Clariman will then have the cash in the bank with no need for any loan or mortgage. A nice feeling.

Dod

[Spet0789]

I have never bought a new build house so perhaps this suggestion isn’t workable, but if you just want to get some carpets put in surely the developer will give you a week to do that immediately prior to exchanging contracts? Isn’t that a lot less hassle?

[Howard]

I guess an answer might depend on your view of house price movements between now and your new house being ready.

Friends and acquaintances in a similar situation have fallen broadly into two groups. One group wait and price their current house too high a and end up having to get a bridging loan and then sell at a lower more realistic price. The others put their house on the market early at a sensible price, sell painlessly and rent a house for a month or two allowing them time to carpet the new house etc.

I admit this is simplifying the issue. We are not moving but I'm expecting our house to fall in value over the next year, mainly because of the steep rise in values here recently.

So, in the situation you describe, I'd probably put the current house on sale early and rent somewhere if I achieved a satisfactory selling price and had to move out early. This might be a lot simpler (and cheaper) than juggling a bridging loan/selling investments.

Could I add that buying a new property from a builder can sometimes take longer than expected. Our son bought a brand new property from a major builder six months ago. Despite it being "completed" for two or three months before the move was due, a week before exchange of contracts the builder suddenly found issues with the house which had to be fixed before the sale could go ahead. Luckily the buyers of their old house were very reasonable and didn't have problems waiting four or five weeks for the necessary work to be done. I have known friends suffering from worse delays when a smaller builder was involved. Renting a temporary property might reduce the stress of such a situation?

Good luck with the move - exciting times.

Howard

[Clariman]

I have never bought a new build house so perhaps this suggestion isn’t workable, but if you just want to get some carpets put in surely the developer will give you a week to do that immediately prior to exchanging contracts? Isn’t that a lot less hassle?

They will let carpet fitters in to measure up and leave any items that need to acclimatise but they won't allow anything to be fitted until the solicitor has paid our money for the house.

[DeepSporran]

https://www.moneysavingexpert.com/savings/flexible-isas/

Thanks for that and the link. Based on MSE's list I don't think any of our ISAs are flexible

It might be a lot of admin, but nothing is stopping you from transferring some, or all, of your current ISAs to a flexible ISA from a different provider. You can then withdraw from the new flexible ISA, then put the money back in (in same tax year) once you have it available. You can then transfer the flexible ISA back into whatever ISA from whatever provider takes your fancy ( maybe even going back to your current ISA providers.)

Caveats :
1: Not all ISAs allow inbound transfers
2: ISA transfers are not instantaneous, and Stocks and Shares ones in particular can take months. Cash ISAs I suspect can be transferred more quickly, though I have no direct experience of this.

[Gerry557]

Yes there can be a few issues with this process.

As others have mentioned your house could devalue in the time period. There are various assumptions from 5 to 20 percent. How would this factor in your thoughts and financial calculations.

Can you get a mortgage? What is the max they will offer you. I think if available this would be my go to as it gives flexibility and the means to effectively overpay or reduce to zero when you sell the house.

As for the isa withdrawal, what are the options for restocking? A couple can pay in £40k a year so how long would you need to get back to where you are. If you are planning to use the allowance in full anyway in the future it might have a bearing on your options. Again pointing to a mortgage

Timescale this is a difficult one. You have the builders estimation assuming it goes to plan. What is the builders rep like. There are so many examples of poor workmanship and faults on new builds. What would you do if yours suffered?

I know someone in a new build who had to have new ceilings all round. The first time they had to move into a hotel for a month or so. This didn't work and was redone a second time playing musical furniture emptying a room at a time. No all new builds are this bad I grant.

Good luck with whatever way you decide and do take the advice of talking to an advisor they might be able to find someone who is prepared to listen to your plan more sympathetic and not just a tick boxing exercise where the computer says no.