Upsizing House Mortgage
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Upsizing House Mortgage
Richard Campo joins the Mortgage and Protection Podcast to discuss upsizing your mortgage.
How does upsizing work?
It’s like any type of mortgage really. For the technicalities around it, I’d suggest you look at the home mover page on our website. But there are two main aspects I want to focus on with this podcast – how the mortgage works, and the experience of buying and selling property.
On the mortgage side, a piece of legislation came out in April 2014 called the Mortgage Market Review. This was a really positive move, meaning that each time you get a mortgage you’re treated the same – so whether you’re purchasing for the first time or remortgaging for the 20th time you’ll go through the same affordability checks.
One thing that’s very different is you’ll be dealing with estate agents again, but the shoe’s on the other foot this time because you’re the client, so you can really enjoy that! One thing I’d say is that some people perhaps aren’t as prepared as they could be for upsizing. You’ll probably sell your current property, or you might want to rent it out – either way, you’ll need to do some research into estate agents and compare their fees and level of service.
I live in a relatively small village in leafy Surrey and there’s basically two good agents here. It’s not to say corporates are good or independents are good or vice versa. Just take time to understand what’s going on in your area, because they could get you a better sale price for your property. If you’re looking at renting they could get you the best rental income possible.
Is there a right time upsize your home?
It’s generally when you’re sick of the sight of it! Normally it’s when you have children and there are more people around, you’ll want more space.
Maybe like everyone you got a dog in lockdown and realise that living in a flat with a dog is not a great idea – I see that quite a lot. Maybe you want a bit more space because your working patterns have changed. Previously most people were in the office four or five days a and now it’s maybe one or two, or sometimes not at all.
If you’re commuting once or twice a week you can probably stomach a two hour journey and make use of the time productively. So that expands the geographical area that you might look at for property – hence why upsizing post and during Covid has been such a big factor. You’re not so wedded to living within a short distance of your office anymore.
As a firm ourselves we went remote. It opens up all sorts of possibilities. People value their time and their work-life balance, and where they live is a massive part of that equation and why it’s such a big topic at the minute.
Do you need a deposit to upsize?
With mortgages, it always depends. There’s a sliding scale. The smallest deposit you can have is 5%, and once you put down a 40% deposit or more you get the cheapest possible rates.
There are a couple of breakeven points. Lenders are more generous once you have a 15% deposit, and you are considered low risk when you have a 25% deposit. That’s because house prices have never gone down more than 25% in any one cycle, so the bank won’t lose money on you, which makes them more relaxed.
Typically when you’re upsizing, you tend to have a bigger deposit. You may have been in your place for a while and saving up. So deposits aren’t too much of a factor.
But if you really want to push the envelope you could maybe clear off some debts at the same time and put down a smaller deposit. That’s no problem and lenders are pretty generous. At the time of recording this in January 2023 you can buy property up to £3 million with a 10% deposit.
If you’re a high net worth individual we can possibly go further by structuring different assets. It’s probably more liberal than you think. Deposits don’t tend to be an issue in this sector. It’s just a case of using the optimum amount based on what you’re looking to do.
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What costs are involved when upsizing?
Stamp duty is the really big one. it works in a couple of ways depending on whether you are buying and selling, or renting your first property out.
For example, if you live in a one bedroom flat in London and want to hold onto it as a rental, you’ll be charged an additional 3% stamp duty on the new property. Even though it’s not a Buy to Let, it’s a second property. If you’re named on more than one property at the point of completion then you’re charged that surplus.
Do be aware of that. Use a good online stamp duty calculator to understand how much that will be before you start.
If you’re selling your property, you’ll need to pay estate agency fees. They do widely vary. There are online-only agencies offering a fixed fee of like £500, or up to 3.5% of your sale price with an agent. It’s all about finding the right agent for the area – there’s no one rule. Online might be a good solution in bigger towns and cities.
Outside of that, you’ve obviously got moving costs. Take time to find a reliable firm. I had a nightmare with our movers – they smashed some of our things, so getting the wrong firm can be expensive.
Then you’ve got legal fees and survey fees. Survey fees are fairly nominal and legal fees can range from a few hundred pounds to a few thousand pounds. I recommend you go with a good solicitor and that means paying for it – now more than ever. Conveyancing firms can be a bit of a sausage factory. They are lower cost but can be quite a poor experience. These firms run on skinny margins, so look at Google reviews or get recommendations from estate agents or friends and family.
It’s important because if you can’t get the legal work done in time everything might go out the window. Most upsizing stories revolve around children, school term dates and catchment areas – so don’t risk it. Get a good team so you’re where you need to be at the right time.
What are some of the advantages and disadvantages of upsizing?
The big advantage is that you’re achieving a specific goal. It means you can get your child in the right school, or gain more space, or you can live near a beach. It can also be an investment opportunity as well. You could hold on to existing property if your income and deposit allows. It will give you a Buy to Let in reverse.
The main downside is that upsizing is an expensive process, with stamp duty, legal costs and selling fees. Plus you’ll be taking on a bigger mortgage when you’ve got children, school fees and other things to contend with. It’s a wonderful but scary time.
I’ve just gone through all this – my children have just finished nursery and I’ve now got the big house in the country. So I’m through the other side. We can talk you through and support you through the process. It’ll be quite scary but the rewards are there.
From personal experience, we’re now in a nice part of Surrey with a fantastic school. We know our neighbours and even moved down from London with one of them. I’m over the moon with what we did, even though the process was quite stressful.
What else do we need to consider?
I just want to pin it down some more detail around affordability. Think about what’s changed since you last took out a mortgage – you might have a really strong income, but if you’ve got a second property, children in fee-paying schools or nursery etc, that will be taken into account.
The affordability is really important to get right. Don’t just talk to your bank because they don’t all calculate things in the same way. Some banks ignore certain things, others don’t. It’s our job to put you with the right bank for the right outcome.
Structure is also really important. You might put a proportion of the loan on interest-only and can mix that with a repayment mortgage. It comes back to budgets and affordability, but it can be a good way to keep costs down for a period of time. That’s no bad thing as long as there’s a viable way of paying back the interest-only element. You might have bonuses or other assets, or you might refinance later.
Lastly, most importantly, brokers have access to exclusive deals. We get preferential treatment from banks and lower rates that you just won’t get on the high street. Another Covid shakeout is that around 90% of all mortgages are going through brokers now. So
deal with a really good broker because we can make a real difference.
You’ll have all sorts of things going on and your time is very valuable – so let us worry about this and make the whole process go as smoothly as we can.
Your home may be repossessed if you do not keep up with your mortgage repayments.