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?

It sounds like you are in a good position, you are however making a bet on the housing market. I know it is assumed that house prices always tick up (at least with inflation), so it probably is ok unless we are about to hit a recession buffer. In London house prices have been falling for 2 years, and what’s good for the goose….
You could also consider testing your house on the market to see if any BTL investors are still in existence. Sometimes they are happy to buy and rent back to you. You could possibly offer to pay a higher than market rent which might attract investors keen on the yield. This gives you cash to reduce your mortgage, you don’t have to pay the extra stamp and potentially get a better mortgage rate as lower LTV. It also gives you cash flow for the renovation.
good luck

Would renting a flat near your renovation with your proceeds sitting in a high interest vehicle of some kind?

Good luck.☕

How long can you own two houses before CGT is payable on the one you sell? That would be 20% (?) on any increase in the value of the house maybe since buying it, maybe since buying the second (not sure).
If the increase in stamp duty is over £30k, could it cost less to rent a small house instead of staying in the original house? But that's 2 moves and living with boxes if the rental is small.
Very exciting though!

You could come unstuck if your primary home doesn’t sell quickly and you miss the timeframe for reclaiming the stamp duty. People mess you around and pull out of sales. You could also end up owning two homes and will have to remember to nominate a main residence within a time deadline and you have to navigate the rules on capital gains tax for a second home.

you would have council tax second home cost and insurance costs and utilities to pay. You would be better off selling your place first and renting or putting your furniture into storage and move in with relatives if an option.

If we ever find a “project” house to buy, we will do this. Much nicer than living there during the renovation, if you can afford it.

You need to sell your first home within 3 years to reclaim the extra 3% stamp duty. You’d want to start trying to sell within 2 years, maybe earlier if your house is unusual/very rural etc to be fairly sure of making the deadline.

If you sell within 3 years I think this also avoids any CGT issues.

The real costs are 1) the mortgage costs on property 2. If you bought and sold at the same time your mortgage would presumably be much smaller or non existent if you use savings. 2) the lost investment income on the premium bonds, I think they say average return on premium bonds is 3-4%?

On the other hand the building work would likely go quicker with you not living there and you’d save on incidental costs of trying to live through a renovation (temporary kitchen, takeaways, etc)