What do you think of this house buying plan?

[DarlingBudsOfJune]

We own a house worth £350k. No mortgage.

It's not sold or on the market. This is because we haven't thought about selling or moving until a few days ago when something happened with a neighbour (nothing that affects us directly or selling our house).

I've seen a house for £475k. It's been on the market a while and reduced a couple of months back so might go for less. It needs a full renovation.

I want to use some savings (Premium Bonds, nothing that'll cost us compound interest) as a deposit for the £475k house. And then take out a mortgage on it.

We will put on the market but continue to live in the £350k house while we renovate the £475k house. I would hope that moving out of the £350k house would come around the same time that we'd made the £475k house liveable.

What do you think of this plan?

Initial thought- you'll have the higher stamp duty to pay. At least initially and I don't know the system or timeframe for getting it back later.

I don't know how residential mortgages work if you aren't going to be living there. May be a higher rate.

Council tax in some areas now is higher if you aren't living in it and it's a second home.

Renovation costs are high currently so make sure you get a good deal.

You'll need to take into account stamp duty being higher on a 'second home' which the new house will be deemed to be as you're living in the other one - at £475k that's £37,500 just in stamp duty alone before other legal fees. You can claim the second home part bit back as long as you sell the other house within a certain time (I'm sure it's 12 months).

Also there'll be 2 lots of bills - and depending on where the new home is, some councils charge up to 100% more council tax on second homes (although some don't charge if the house is under renovation).

Thank you, I had thought about stamp duty and factored that in. But I did forget council tax 🤭

Include additional buildings insurance which may have higher rates as it's not your primary residence and is being developed.

From afar this sounds like an expensive luxury choice.

It maybe that you have excellent incomes or are in the trades in which case that does give you some advantages and choices over me in the same position.

But, if you don't, I wouldn't use the fact I own a house mortgage free which, whilst fabulous, wouldn't be sufficient for me to take on all the additional costs and risks.

How long will the reno take?
Do you have enough savings, after the deposit, to service the mortgage for that time + several months contingency?
Do you have enough cash to fund the works + at least 50% contingency?

It's not a bad plan if you have the above covered.
You might also consider moving into a rental whilst the new home is being finished, or even an Airbnb or a van on site if short term.

A full renovation would take a couple of years. But it'll go quicker with us not living there. And we'd move in once it's liveable (I.e. doesn't need to be fully renovated and finished when we move in). So we'd hope to be in after a year, basically once kitchen and bathroom are done.

I'd have to fully price up renovations but we've got enough savings to get started.

Thanks for all your input.

If the numbers work it could be a great idea.

I would buy a more expensive house that doesn’t need renovation

It could work,but there are lots of things that could go wrong.
Who is going to renovate the house if you are working full time and all spare cash is going towards the mortgage ?
You say you have enough savings to get started, cost of materials and labour have soared in the last few years,you are bound to stall when the savings run out,then you will have some renovations done or part done and no crew-they will move onto a job that can pay,and you will have to find more money and a new crew,who don't mind picking up where the first crew left off- more than likely you will have an unlivable house for months or years and a big mortgage .

Sounds like you have thought this out and to me it seems a good plan but the only thing I can think of is do you feel sure your house will sell fairly quickly when you are ready to,put on the market?

You can (normally) get a council tax discount (can’t remember if it’s a discount or complete rebate) if a house is uninhabitable. From what you are saying it’s very likely it would be uninhabitable for a good portion of the time. Normally it means things like no working central heating, etc.

Overall, plenty of people renovate houses and live elsewhere while that’s going on, so nothing to worry about provided the sums work.

This is what we are currently doing. We have bought another house which we are extending and reconfiguring and ours is on the market. As long as we sell within two years we can reclaim the extra stamp duty paid. Much easier having work done on an empty house.

Even if you offer on the new house tomorrow, your building work won't start for several months (3 months before it's yours, then getting quotes etc and waiting for availability of good builder). Are you also doing anything that needs planning permission? Add another 3 months on top for that.
It's basically too early to put your house on market.
Why will it take 2 years of works?
Are you sure you can't live in it?
Building work is very expensive nowadays.

I haven’t read all the comments but think it really depends on your age, income etc! Are you happy in your current home? To live mortgage free is AMAZING especially in the col crisis. If I was in your shoes, I’d rather spend all the extra money on travelling/experiences etc BUT as I said, totally depends on your current life stage.

I would make a spreadsheet on how much everything will cost and think long term ie would you have to work longer etc

We did something very similar. But our overall was 4-6 weeks not months. Amazing to be doing stuff in an empty house and then returning to our clean home at night!

The stamp duty refund was very simple and quick. The financial pain was the high mortgage we had in the interim because we were waiting on the sale of our old house to get a deal with a better loan to value.

I underestimated renovation costs by over 100% when we did it.
For us the blood, sweat and tears were simply not worth it but maybe in your case. You can easily go from comfortable to stressed when renovating.

You ask what we thought? What I think is that it's ludicrous.

I think it's a brilliant position to be in, and congratulations on finding a house you want to renovate to make in to your perfect home!

As others have pointed out, the additional stamp duty on a second home will be huge. To mitigate that and save at least some money, you could consider selling your current home, putting some or all your possessions in to storage and renting short-term until your new home is at least liveable - that could save you a considerable sum against the second-home stamp duty. You should also get a council-tax reduction on the unlivable home while it is being renovated, but you will obviously still have bills on your rental to consider.

Good luck!

It sounds like an okay plan. What's the approximate cost of the renovation and how would you finance it? Why would it take years?

Capital gains tax?

Thanks so much for all your comments.

To answer some if your questions:

• We're late-30s

• Renovations will cost about £120k but obviously we can't know for sure

• We have good tradesmen from renovating our current house

• I get the point about putting ££ into travel/experience etc but I'm pretty sick of where we live ATM. I don't see CoL getting any better

• We have savings currently that we can get started with. But obviously work wouldn't start for months by which time we'd have saved more so more to get thing started with. Then we'd be saving/paying with month-to-month income. When out current house sold, that'd give us a wedge for renovations

• Our income is about £10k/month

• Houses on my current street sell in about a month so I'd hope we could get it shifted quite quickly

I'd suggest letting out your current home so you have an additional income stream. House rent always cost more money than you think especially now. The rental income woll provide a financial buffer.

Can you move into the house & live in one room or in a caravan onsite while the new house is a renovated.

My friend recently did this and it worked well. All renovations nearly completed and they put their old house on the market and it sold quickly.
They didn’t need planning permission though to make the changes and used contractors and did some work themselves.

I really, really, really don't want to slum it while the renovation is being done. That's the whole reason behind my plan. I've done it before, it was so awful 😖