It would be fair to say in today’s market, the majority of homeowners in the UK have a mortgage. However, when it comes to selling their home, many people are unsure what happens to their mortgage, or even if they are able to sell at all.
Whilst having a mortgage still means you own your property, what happens to your mortgage, should you decide to sell your property, will depend on multiple factors. Here, we will be looking at what happens to your mortgage when you sell your house, plus other common questions homeowners have when it comes to their mortgage and selling their property.
Can you sell your property while you’re still in a mortgage?
The short answer is yes, it is possible to sell your home while you’re within a mortgage, but it is not always as simple as that. You typically have two options when you want to sell your property with a mortgage. You can:
- Sell your home and use the money from the sale to pay off your mortgage, or
- ‘Port’ your mortgage to another property if you are buying again.
The most common option with sellers is that their mortgage is repaid in full from the sale of the property. As long as the sale price covers the amount you have left on the mortgage, this is very possible.
The solicitor or conveyancer that is dealing with your paperwork will contact your lender for a redemption statement and pay off the outstanding loan amount to them out of your buyer’s completion funds. If you need a mortgage for your next property purchase, you should have already completed an application for that separately. You will need to do this whether you are porting or applying for a completely new mortgage.
Can you transfer your mortgage to another property?
Normally, this is possible. It is referred to as ‘porting’ and even though it isn’t actually transferring the money itself onto your new property, it does have some useful benefits. In essence, when you ‘port’ you are still redeeming the mortgage you’ve already got and taking out a new one, but the new one, up to the same amount as your old one, will stay on the same terms and interest rate as the ported mortgage.
Whether or not you are able to port your mortgage will be down to your lender and your circumstances. It is important to keep in mind that if you are borrowing more money for your new purchase, the amount that is higher than the ported mortgage would be subject to a different interest rate and different terms.
Porting is still a popular option with homeowners on competitive interest rates as taking out a new mortgage could see you end up with a higher rate and so you pay more interest. Rates can vary between lenders, so you should do some research into what is available in the current market before you decide to port, as there could be a better interest rate for you with a different lender.
What is negative equity?
Negative equity is the term used when your property is worth less than your mortgage. This can make it very difficult to sell as your sale price does not cover the entirety of your mortgage. Negative equity is not as common today as property prices have generally increased over the past ten years, but during times of economic or political crisis, like the 2008 financial crash, house prices can drop significantly, and it is in these instances when homeowners could find themselves in negative equity.
What should you do if your mortgage has early repayment penalties?
If this is the case and you are purchasing another property, you should think about porting your mortgage to your new home, as this will avoid any early repayment charges. Penalties like these can be a substantial cost for sellers, that is why you should always check with your lender prior to making a commitment to sell your property. Sometimes, it can be more beneficial to hold off until you have passed your agreed term.
If you port, can you avoid the mortgage application process?
Yes, to a degree, but as you are moving your mortgage onto a different property, your lender will have to value that property to make sure it is worth what they are lending. This means that you will almost definitely have to pay a valuation fee, but porting can often mean you are able to avoid product and arrangement fees that are associated with new mortgages.
Your lender will also reassess your borrowing potential, and debt/income levels as your personal situation might have changed since you took out your original mortgage. If your lender is concerned after their assessment, they could prevent you from porting your mortgage.
What should you do if your lender won’t let you port your mortgage?
If your lender won’t let you port your mortgage and you can’t maintain your current deal, you will have to find a new mortgage, whether that is with your original lender or a different one. The best thing you can do in that situation is speak with a professional financial adviser, like our team at Finance Advice Centre. This is because they can access a range of mortgages and lenders on the market to help you find the most suitable mortgage for your financial circumstances.
If you feel that your lender is not being fair with their affordability checks, you can choose to challenge their decision. The first step, if you decide to do this, is to put your complaint in directly to the lender.
What happens if you are porting a mortgage to a cheaper house?
If you are moving to a cheaper property, that means you would need to borrow less, so porting could be a very promising option for you, especially if you are on an attractive interest rate. Also, if your situation has not changed since you applied for your original mortgage, you should not have a problem meeting your existing lender’s criteria.
You should be aware that if your mortgage has an early repayment penalty (typically between 1% and 5%) that charge will likely be applied to the difference between the two loan amounts.
What will happen to your monthly repayments?
Your mortgage terms and interest rate should stay the same, so as you are borrowing less money, your monthly payments will decrease, provided the same rate is applicable when you port your mortgage to the cheaper property.
Is porting or paying off your mortgage the right choice?
There is no right or wrong answer when it comes to what to do with your mortgage when you are selling your house. It will really depend on your own circumstances, what will work out best for you. If you are on a good interest rate that can’t be beaten by any other offers on the market, then porting your mortgage could be the better option. Also, if you have high early repayment charges, porting could benefit you in that way by saving you some money.
As a mortgage is secured against your home, it could be repossessed if you do not keep up the mortgage repayments.