selling a house

Milestones: Financial planning for selling a house

Last month we shared some financial planning tips for buying your first home. Hopefully once you’re in, you’ll be there for a while! But when you join the property ladder, there’ll more than likely be a time you want to sell a house too. And the financial implications can be as significant. Selling your home can be an expensive business!

People sell their houses for a whole host of reasons. It might be to upsize or downsize. It might be purely as part of an investment. It might be to free up funds. There are different financial considerations and implications for each situation.

For the purposes of this article, we’re going to assume you’re selling to move further up the ladder. We’ve highlighted the key financial considerations to help you plan.

Stop and think: should you actually be selling?

The first question to ask yourself is whether you should be moving at all! If extra space is your ultimate aim, could a conversion or extension serve you better? Just a thought…

The second check you need to make is whether you can actually afford to sell. The big thing to check is that you’re not in negative equity (where the market value of your property is below the amount outstanding on your mortgage). There are various online services that can give you a rough market value based on location and previous sales values. That can be a good place to start if you’re in any doubt.

A final consideration, depending on your circumstances, is whether renting your home out be a better option that selling.

Get your finances in order

Once you’ve taken a moment to stop and sense-check your house sale and confirmed it is the right thing you do, you need to start planning.

You’ll need to notify your current mortgage lender that you’re planning on selling. They will confirm how much you still own and tell you if there are any penalties for paying it back early.

It’s also a good time to get a more accurate idea of what your house is worth. Make sure you get an opinion from at least 3 local estate agencies. Don’t necessary go for the highest price, particularly if it’s significantly above the other values. The price needs to be realistic to generate the right interest. But do remember that it’s common for buyers to make an offer under the asking price, so allow for that.

As with buying a home, knowing all the costs involved in selling a house and budgeting accordingly helps avoid the stress of figuring out how to fund unexpected expenses. The things you need to allow for include:

  • Estate agency fees – high street commission is typically anywhere between 1% and 3% commission (plus VAT) on the sale price. There are a growing number of fixed-fee online estate agents. Using one of these options could be the simplest way to reduce the cost of moving. But make sure you choose carefully.
  • Removal costs – depending on how much you have to move, this could be upwards of £1,000, a significant sum.
  • Solicitors fees – you can expect this to be anywhere between £500 and £1,500 depending on how complicated the sale is.
  • Energy performance certificate (EPG) – this is a legal requirement. An accredited assessor will carry out the required survey, at a cost of £50 – £120.
  • Other costs – there are bound to be plenty of hidden costs too (mail redirection service, disposal of unwanted white goods…). Make sure you allow a contingency budget to cover these costs and avoid additional financial stress.

The sales process can be rather convoluted. The key thing is, once you’ve received and accepted an offer you’re happy with, make sure you’re 100% committed to selling. When you get to the point of exchanging contracts with the buyer, you become legally committed to selling the property. If you pull out without due reason, you may be sued.

Capital gains tax

You don’t usually pay tax when you sell your home, as long as you have one home that you’ve lived in as your main home for the time you’ve owned it and didn’t buy it just to make a gain. You automatically get a tax relief called Private Residence Relief.

BUT, if that descriptions doesn’t fit you, you may have to pay capital gains tax, so it’s worth a quick mention here.

There are various rules and regulations that apply – it’s best to get some independent financial advice on this area, preferably long before you come to sell the property as there may be ways to limit the amount of capital gains tax you pay, with some planning.

Planning for the future

Whatever your reason for selling, it’s a safe assumption that the sale of a house will coincide with a change in your financial circumstances. You may have diminished your savings in the process, or have stretched yourself a bit with the mortgage on your new property. Or perhaps you suddenly find yourself with a bunch of cash that you’re not sure what to do with.

Whichever end of this scale you find yourself, it will be wise to take a step back and review your finances more generally to make sure you manage the change in circumstances well. It could a good time to sit down with your independent financial adviser to give your finances a quick health check – we’re happy to help!

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