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If I sell, what’s next?

Tags: Residential Residential Views

Some sellers are intimidated by current market conditions, understanding that heightened competition and a lack of choice spell difficulty when searching for their next home. Bayleys asks what solutions exist for the forgotten majority?

Rising house prices may read as good news for would-be sellers, however rapid value growth and the associated buying frenzy has prompted many to ask if I sell, what’s next?

Where targeted policy and support schemes address the plight of property investors and first home purchasers, an estimated 42 percent of Auckland’s residential marketplace is comprised of Kiwis moving from one house to another.

While undoubtedly an excellent time to capitalise on record-low interest rates and improving market sentiment, greater competition amongst residential purchasers has resulted in sharply rising house prices.

For sellers, this means attractive capital gains, yet those looking to cash in and move on will most likely be faced with the challenges of selling and buying again in a residential real estate market that’s moving at a rapid pace.

The cycle

Often described as being in a state of frenzy, the half-yearly performance of New Zealand’s residential property market has been nothing short of astonishing, driven by record-low interest rates and insatiable buyer demand.

The cycle goes; as property prices keep rising, buyers feel increasing pressure to purchase, leading to a backlog of bank loan applications, conveyancing requests and a growing necessity for swift decision-making.

Purchasers are increasingly encouraged to line their ducks concerning pre-approvals, financing and due diligence.

With a growing number of Kiwis waiting to move up the property ladder, some sellers are hesitant to list their properties for sale, fearful there will not be enough time to find a suitable new home, as properties are currently spending little more than a month on the market for sale.

This, in turn, has created a shortage of listings which perpetuates the cycle, facilitating that familiar air of frenzy.

Settlement terms

For sellers eager to take advantage of heightened buyer interest, the search for their next home may have already begun.

Where selling an existing property to release capital before moving on is the traditional strategy for Kiwis moving from one property to another, it can put extreme pressure on the house-hunting process, especially in a red-hot residential market.

Purchasing your new home before releasing the equity in your current residence may allow you to search for a new home on your own terms, however, it comes at the financial risk of paying two mortgages at the same time.

In either case, the flexible nature of a sale and purchase agreements allow tailored clauses to suit your situation.

For sellers, the inclusion of an extended settlement to the sale and purchase agreement terms and conditions can offer time to search for a new home before the sale of the current house has concluded.

A settlement extension typically involves setting the settlement date back 90 days or more, offering homeowners the opportunity to better align the settlement dates on both the current and new properties.

On the flip side, sellers wishing to secure the next property before listing their existing home for sale may use an extended settlement to their advantage by negotiating a longer settlement term at the time of purchasing the new home.

Bayleys recommends seeking legal advice to find a solution within the sale and purchase process that’s the right fit for you.

Bridging finance

Proving to be a particularly useful financial tool especially in hot housing markets, bridging finance is a form of lending that helps sellers to buy a new house before selling their current residence.

Various banks and non-bank lenders will have different criteria for their bridging loans.

While floating rates are often higher than their fixed-rate counterparts, sellers on these interest-only terms are generally not required to pay principal for the duration of the bridging loan.

Two types of bridging loans exist and choosing to seek an open bridging loan can help sellers which have purchased elsewhere to secure finance until a time their existing property is sold and its equity released.

A closed bridging loan is often utilised by sellers which have sold and already purchased a new home, however, there may be a mismatch in settlement dates.

Closed bridging loans are considered a lower risk for lenders as there are sale and purchase agreements in place for both the current and new properties which offer a guaranteed timeframe from which the bridging loan will be repaid.

As with any financial decision, there are risks involved and Bayleys recommends homeowners always seek financial advice from a qualified professional before making personal decisions.

Becoming a landlord

Another solution for sellers reticent to enter the market without finding a new home is to become a landlord.

Retaining an existing residence as an investment property may be more achievable than many homeowners expect as there may be potential to use the equity in the current home as a deposit for a loan on a new property.

Bayleys recommends that sellers considering this solution always seek qualified advice, as there will be tax implications and obligations under recently amended tenancy legislation.

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