There is no single order that is safest for every home mover. Selling first mainly gives you certainty about your buying budget. Buying first gives you certainty about your next home, but it may mean temporarily carrying two homes and a bridging loan.
So the real choice is: which risk can you handle better? Financial setbacks if you buy first, or housing and time pressure if you sell first?
Sell your current home first
If you sell first, it becomes clearer how much of your own money you can use after the sale. Do not just look at the sale price or the estimated equity. What matters for your buying budget is the net amount left after repaying the mortgage and paying the selling costs.
That certainty does not arise immediately when you accept an offer. As long as the buyer of your home can still invoke a condition allowing them to withdraw, the sale may still fall through. A private home purchase must also be agreed in writing. A verbally accepted offer is not yet a documented sale. The completion date also determines when the money actually becomes available.
The main benefits of selling first are usually:
- you can base your buying budget on an agreed sale price;
- you are less dependent on an estimated property value;
- you may need less bridging finance, or none at all;
- the risk of paying the costs of two homes for a long time is lower.
However, this creates a different kind of pressure. If you do not find a new home in time, you may have to rent temporarily, stay with family or put your belongings in storage. This may mean moving twice. You also risk buying a home that is not really right for you because you are under time pressure.
Allowing plenty of time between the sale and completion of your current home can help. The buyer of your home must agree to this. Also agree on a backup plan in advance: where will you live if the search takes longer, and how much can that cost?
Buy a new home first
Buying first may make sense if the type of home you want is scarce or if you do not want to sell before finding a suitable next home. This prevents the approaching completion date of your old home from determining your buying decision.
The financial risk is greater. You do not yet know exactly when your current home will sell or what the net proceeds will be. During the period in between, you may have to pay the mortgage on your old home, the mortgage on your new home and interest on any bridging loan.
So do not just have someone calculate whether buying first is technically possible. Have them calculate how long you can pay the total costs from your income and available savings.
A bridging loan is not guaranteed equity
Subject to certain conditions, a bridging loan allows you to use part of your expected equity temporarily for the new home. The loan is normally repaid from the sale proceeds of your old home.
The lender determines how much you can bridge and under which conditions. Factors may include the sale status, the established property value, the existing mortgage debt, selling costs and your ability to afford the temporary costs. The calculation and maximum term vary by provider.
A bridging loan therefore does not shift all the risk to the bank. If you sell later, or your home sells for less than expected, the higher costs continue for longer and you have less money left to repay the loan or invest in your new home.
Calculate the unfavourable scenario too
An optimistic calculation is not enough. Alongside the basic scenario, have a stress test prepared in which several setbacks occur at the same time:
- your current home sells later than expected;
- the net sale proceeds are lower than expected;
- you pay the old and new mortgages for longer;
- interest and costs for the bridging finance continue;
- buying costs, selling costs, moving and essential work all coincide.
The buffer you need is not just the amount required by the bank. It is the amount that allows you to handle this unfavourable scenario without having to reduce your sale price significantly because of time pressure.
Can conditions reduce the risk?
When making an offer, you can propose that the purchase only goes ahead if your own home is sold in time. A seller does not have to accept this condition. In a competitive bidding situation, it may also make your offer less attractive.
Under the NVM No Risk clause, the seller may continue to offer the home for sale subject to certain conditions. If another suitable buyer comes along, the first buyer may have to choose between quickly making the purchase unconditional or letting the home go. This is only safe if you know in advance what you can afford.
Making the purchase subject to the sale of your own home does not automatically replace a financing condition. Make sure the agreement states which home must be sold, what counts as sold, which evidence is required, what the deadline is and how the different conditions work together.
Coordinate the completion dates
A later completion date can buy you time. If you sell first, later completion of your old home gives you more time to find something new. If you buy first, later completion of the new home can give you more time to sell your current home.
Do not make the schedule too tight. Allow for conditions that may let a party withdraw, mortgage approval, the valuation, the notary and unexpected delays. A gap of a few days may seem practical, but it leaves little room if financing or completion is delayed.
Also consider the tax implications
Subject to certain conditions, mortgage interest on both the new home and the vacant old home that is genuinely offered for sale may be temporarily tax-deductible. This tax benefit may lower the net costs, but it does not remove the need to make the full monthly payments in the meantime. Only the tax benefit may reduce the net costs.
If you sell with equity, the bijleenregeling may affect the portion of your new loan on which the interest is tax-deductible. If you buy first and sell later, the tax treatment of your home acquisition debt must be reassessed after the sale. Make sure this is included in your calculations, especially if you and your partner have different ownership shares or previous home equity reserves.
Which order is probably a better fit?
Selling first is more likely to make sense if you have little room to cover the costs of two homes, depend heavily on the sale proceeds or need a high degree of certainty about your budget.
Buying first is more likely to make sense if you have substantial financial buffers, can carry the higher costs for long enough and the type of home you are looking for is difficult to find. However, the saleability of your current home must be assessed realistically.
Only decide after comparing two analyses: a financial calculation of the basic and unfavourable scenarios, and a local assessment of both the saleability of your current home and the scarcity of the type of next home you want. Only then should you finalise your offer conditions, sale schedule and completion dates.
