Financing a new house in terrible market conditions

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Wing&Prayer

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The dilemma.

We have lived in our current house for three years. However we have seen a house which is up for auction very soon and would like to bid on it. As with most regular auctions, if we become the successful bidder, we need to pay 10% of the agreed price 'up front' and the balance within four to six weeks of the auction. The problem is that with the market in a slump at the moment, it is very likely that we will not be able to sell our current house within that timeframe in order to properly finance the purchase of the auctionned house! Our current house is a detached four bed. A similar house close to our own has been on the market for about nine weeks now with not a single offer.

A possible way to get around this might be to rent our current house, the income from which would go some way towards covering our original mortgage. That of course is provided the bank will advance us a mortgage to cover both the purchase of the auction house and keep our current house until the property market picks up again (sometime this decade!)

Q. If we elect to move into the new (auctionned) house, rent our current house and then find a buyer some months later - do we become liable for CGT on the sale of the original house (as it would now possibly not be considered our principal private resicence) ??? Is there a time scale involved before our original house would be considered for CGT due to the fact that we had rented it???

Thanks for reading! I am sure the bank will probably steer us in the correct direction - "don't bid!". :(
 
Wing&Prayer said:
Q. If we elect to move into the new (auctionned) house, rent our current house and then find a buyer some months later - do we become liable for CGT on the sale of the original house (as it would now possibly not be considered our principal private resicence) ??? Is there a time scale involved before our original house would be considered for CGT due to the fact that we had rented it???
Click to expand...

As far as I know if your purchase and subsequent sale overlap by a year or less, there's no CGT applied to the sale. However, I don't know if the fact that you rent the current house in the interim changes this position.
 
Will a bank give you 90% without your current house being sold. Not likely at the moment unless you have hugh equity. Auctions as I understand it commit you to a full purchase, no get out clauses and you have to prove you have the finance, that's why it's an auction. You also need to do your surveys now. Auctions are not for the faint hearted and you should know your max bid before you go in as people can get carried away.
 
As far as I know, as long as you sell the house within one year you are not liable to incur CGT. If however you sell it further into the future you will be liable to the following for example:

If you reside in the house for 3 years and let it out for 2 you are liable for two fifths of the profit you have gained which is taxed at 20%. So if you bought your house for 300K and sold it for 500k you would be taxed on 80K (2/5 of 200K) which would work out at 16K cgt.

This is my understanding of the situation but I am open to correction.
 
I think Lossy is right. Last 12 months of ownership you are deemed to have occupied the house. I don't think renting it out matters. Any subsequent months will incur CGT by the formula: Taxable Gain = Total Gain X (Time Unoccupied/Total Ownership)
 
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