One of the most common questions we get asked at Weystone Financial is, ‘What happens to my mortgage when I sell my house in the UK?’ and “can I keep my existing mortgage when moving home?”
When you move home it’s important to understand what happens to your mortgage: Your legal representative will pay off the remaining mortgage in full. You would then need to start a new mortgage if you are buying a new property.
If I already have a mortgage and want to move home, what should I consider?
There are a few things you should consider before moving home while you have a mortgage:
- Early redemption penalties – Sometimes moving house isn’t as simple as you think and you may need to pay some fees to be able to leave early. This is a fee you may be charged if you would like to leave the mortgage during the agreed period of the deal. Typically, these penalties are between 2% – 5% of the amount you pay off.
- Portable mortgages – A portable mortgage is where you are able to transfer your mortgage balance to a new property, with the same lender, without any penalties.
- Additional borrowing – You may also want to consider whether you will need to borrow more for your new home and how this could affect your mortgage.
- Current rate – Is the current rate you have better than any new rate you may get in the open market? It’s most likely that you have some form of deal on your current rate, whether it’s a fixed, discounted variable or tracker rate.
- Moving home penalties– It could also be that penalties are applied if you move home whilst you already have a mortgage with your current lender.
It’s important to note that most lenders will let you overpay your mortgage to a certain extent without incurring penalties, however these are usually small and relative to the size of the mortgage. Usually, it would be an annual amount up to 10% of the outstanding mortgage debt.
This is where a portable mortgage could come in handy!
How do I port a mortgage?
If you are able to port your mortgage (which most people are), it will mean that your legal representative will pay off your existing mortgage and give you a new mortgage for your new property. Typically, the same rate as your old mortgage will be applied to your new mortgage by your lender. Your lender will then rebate your redemption penalties and apply the same mortgage rate you had on your old mortgage for the balance of the term left on the rate.
Depending on which lender you are with, they may make the porting happen on the same day as the redemption of the mortgage. Other lenders may leave a gap of up to 6 months from the sale of your old home to the purchase of a new home.
What happens if I want a larger mortgage when moving home?
You can move from a less expensive property to a more expensive one, but you might run into a few complications on the way. Some lenders will allow you to borrow additional funds at the same rate as your ported amount. However, the majority of lenders will suggest that the additional funds get placed at a rate that is in their range at the time of making the application for the new mortgage.
Dependent on your current situation you may want to consider changing lenders for one of the following reasons:
- Your current lender’s rate will become uncompetitive in the future when either one of the rates end.
- The lending criteria no longer fit your circumstances, e.g they won’t lend as much as another lend or refuse to lend on certain types of properties.
Should I port my existing mortgage, or pay the redemption penalties?
If you are making a decision between porting your existing mortgage or paying the redemption penalties, you should weigh up your existing ported rate with any new rates that could be available if you pay penalties before you decide to port. Keep in mind that porting might not be in your best interest if your current rates are lower than your existing rate.
Have you held your mortgage since before 2009? You should also see if your mortgage has a conventional lenders retention rate or a form of tracker rate for the term of the mortgage. This arrangement is less common in recent years due to the low-interest rates we have all become used to, however, you may find an advantage.
Tracker rate mortgages are not fixed at certain interest rates. They move in line with one of two external rates: Bank of England base rate (BBBR) or London Interbank Offered Rate (LIBOR).
If you do have an old tracker rate mortgage, you may want to seriously consider porting your mortgage, assuming you are okay with the risk that interest rates could rise in the future.
Thank you for reading our blog ‘What happens to my mortgage when I sell my house?’. If you would like mortgage advice, get in touch with Weystone Financial today.