Trading down - how do 'chains' work in practice

Hi,
I am strongly considering trading down but I am put off by the trouble associated with selling my current house and buying a new property. It seems like it would be incredibly difficult to coordinate this going by the experience I had when buying my first property yet in practice this happens all the time. How would it work in practice? ie do I first sell and then when my place goes sale agreed I put in an offer on a new place? And would I apply for the new mortgage before I sell?

Sorry if these are basic questions. I'd always assumed that I'd live in my house for the foreseeable but life and circumstances mean that it might just make sense to move. I should say that renting for the year isn't an appealing prospect and I have no family I can bunk with temporarily.

i traded up recently. Closed both sales on the same day, no problems.

You will need to be sale-agreed and have a deposit on your own house before going sale-agreed on the house you are buying. Get your own house on the market and have a few serious bidders before bidding on anything yourself.

You can apply for your new mortgage before you sell. The bank will approve you on the condition that you are selling your existing house and you will clear the old mortgage before drawing the new one. Your solicitor will be able to do this over one day.

The house I was buying was in probate, so this gave me a bit of time to play with. The buyer for my old house was a first time buyer with mortgage approval.

Moving your furniture, etc can be tricky over one day. I put most of my stuff in to storage as I needed to do some renovations on the new place anyway.

Trading down is risky. You cannot eliminate the risks, but you should try to reduce them as much as possible.

Let's say you plan to sell your own house for €600k and buy another for €400k.

1) You sell your own house first. Then you find it difficult to find another house. House prices increase and by the time you actually buy a house, you are paying €500k for it. The costs of the transactions, the redecoration and the moving eat up the €100k cash you were hoping to release.
2) You buy the other house first for €400k. Then prices fall and the market dies. You can't sell your own home. You end up paying two mortgages. (This was common place 10 years ago, but it's unlikely you would get a mortgage to buy a second house now, so it's less of an issue.)

You are adding the complication that you have a mortgage. When you sell your own house, you will pay off the mortgage. While you may be approved in principle to take out a new mortgage, lenders do, from time to time, pull the approval. So you could get stuck.

The best thing to do is to give more information.

Value of present house.
Amount of mortgage
Do you have a tracker?
Which lender?
Your age
Your gross salary
Likely price range of new house
Part of the country or description of the housing market - Are there plenty of houses to buy?
Is the house in your sole name or do you have to do a settlement with an ex?

Reason for trading down.

Brendan

Whatever happened to banks bridging house purchases?

That seemed to work fine for years.

And as I recall the cost on bridging was high so could be a good earner for them

I understand that bridging has been gone for years.

Brendan

Having been down the buying property scene during the 70's and 80's and being on "bridging" for the best part of 1 year in each purchase, I can say that the customer is much better off with the non availability of bridging now.

For those of you who don't know what bridging is, it was an interest only loan from your bank while waiting for your mortgage to come through. You had situations where if AIB was the mortgage provider and also the bridging provider, it was in the bank's interests to keep you on bridging for as long as possible.

Hi Leper,

The counter-argument is that without bridging, one can miss out on the right property, or one can be sentenced (albeit temporarily) to life in the rental market.

Gordon

Hi,

Many thanks for the replies. I think I've enough info to have a fair idea now how to go about it but I'll add extra infomration for you just in case there is something really obvious I'm missing.

Value of present house - Not totally sure because I haven't had it valued but a neighbour's house recently sold for 345k needing some renovation. mine has a bigger garden and has been renovated so I'm assuming at least that. My decision would be based on the house being worth no less that 360k.
Amount of mortgage 304k
Do you have a tracker? No
Which lender? KBC
Your age 37
Your gross salary €41k
Likely price range of new house €150k - €175k
Part of the country or description of the housing market - Are there plenty of houses to buy? Dublin Area. Enough
Is the house in your sole name or do you have to do a settlement with an ex? Settlement with ex. I can live in it for the medium term at least but I've recently started to see the large monthly mortgage repayment as part of the problem with my finances. The sale price for my neighbours house has got me thinking frankly.

Reason for trading down. Seperation <<heavy sigh>>

It would be a big drop in type/location of house from a €360k house to a €160k house.

Are there other options worth considering?

Could you rent a room? If you rent a room it would,in effect, help you to buy the house. Not ideal, but it might be nicer than living in a €160k house.

You might start a new relationship. If you do, you might well be able to afford the €1842 monthly repayments.

I have estimated the repayments based on 20 years. Extending it to 30 years would also save you a lot of money.

You mention the medium term. If you can stay in the house a bit longer, one of the above solutions, e.g. a new relationship might solve the issue.

I don't think you should trade down until you have to. But balance that with not damaging your credit record, so that you can still get a mortgage.

Brendan

BB he didn't say if the equity of 55K less 10 K costs has to be split with his ex.

He didn't say it had to be, so I had assumed that he would have said that.

Hi all. Thanks again for your advice. All of the things you mention are things I have to consider. So far I've already taken a lodger which is okay but comes with its own issues. I still have to decide on the pro's and cons of that versus moving further out from the city, but at least I've an idea on how to start the process if I go down that route.

Rgds