How much can we spend on new house?

[SellingHouse1234]

Name changed so can send this to the other person
Posting here for traffic

We have no idea how much we can spend on the new house so want to try and get it right in our heads first.

Property is worth £330k
Mortgage owed £70k
Equity is £260k

There are two ways to look at it

1. £330k cash for selling house plus £70k mortgage ported across so a total of £400k

1. £330k cash minus £70 mortgage owed is £260k. Then take mortgage out for £70k is a total of £330k to spend

Please help, which is correct?

The second. There isn’t 330 cash from house sale, there’s 260, the mortgage isn’t ‘cash’ it is taken out from house sale.

the second - if you wanted a 400k budget you’d need to increase your mortgage to £140k

dont forget to take out stamp duty and other moving costs for the new house

This - we ended up spending just over £20k with stamp duty, solicitors fees etc.

If you're going like-for-like, then (2) is correct, £330k. But that doesn't mean you can't afford a 400k house, you'll just have to get a mortgage for £140k.

Yes, don't forget lawyers fees, stamp duty and moving costs. Not to mention if you wanted money to cover any costs for the new house eg renovations or furniture. We kept some of our profit from our house sale back to cover all costs and future work to the new property and then increased our mortgage as the property was more expensive and we wanted to keep some money back.

Thank you all, I do agree with the second option being right but can't quite get my head round why the 1st option isn't right

You have your equity plus the mortgage.

Because you only own about 80% of the house - the bank own the other 20%.

Because you are not porting 70k of asset across. That is debt.

you cant do the first option!

if you did say get 330k cash and port your 70k mortgage over to the new house.

you would have a mortgage of 70k but would only have 330k cash to pay for the 400k house? Where would the extra 70k come from to give to the sellers?? It doesn’t come from the mortgage as the bank have already paid that out to you for your current house purchase.

Does it help to look at it as 2 separate transactions?

Sell the house: get 330, return 70 to the bank, have 260 in cash.
Buy the house: use 260 cash, get out a 70k mortgage, have total of 330 to spend.
Ignoring all the fees and things that come with house buying and selling!

1 doesn’t work because say 330k comes into your account and you buy a house for 400k. You hand them the 330k you have. Where does the extra 70k you owe the seller of your new house come from? The mortgage provider ports your existing debt that you haven’t repaid (you still owe them 70k) and gives you an extra 70k to cover the shortfall with the seller. So your total mortgage is now 140k.

Youre just getting confused because you’re porting the mortgage. Imagine if you just got a new mortgage. You’d repay the old one and have a 140k shortfall for a 400k house.

Overall though this doesn’t actually confirm how much you have to spend on a new house. You have 260k equity (and maybe other savings you’re willing to spend?) to fund a deposit and fees. The maximum amount of mortgage you can borrow on top depends on your income (typically 4.5-5x joint salary for a couple) and age (if you’re under 25 years until typical retirement age they will generally lend less so that the term of the mortgage is in line with expected retirement age)

Imagine the first option was correct, we’d all be moving !

Even if you port the mortgage it will be subject to affordability, valuation of the property you want to buy, etc. If your income has reduced this may not be as much as £70k.

So better to think of your total budget (to cover the property, stamp duty, legal fees and moving costs) as being equity + whatever mortgage you can secure.

Your first option is counting the mortgage twice

330k is 70k mortgage plus 260k cash equity unless you are getting a second mortgage you can’t add it on

If you "ported the mortgage' you'd be paying that mortgage payment AND the payment for your new mortgage to get the 400k house.

You'll sell your house, pay off the debt then take out a new debt against the new property.

@LampLighter414
That is the best explanation I've had so far. I get it in my head one moment and then it goes round and the first option seems somehow viable but I know it isn't.

Again thank you to everyone. I know this doesn't include all of the fees involved with buying and selling a house it was just confusing us so wanted clarification before looking at houses that are out of budget