Moving to a new home can sometimes seem even more complicated than buying your first home. What happens to your existing mortgage when you move house? Can you take it with you? Should you look for a cheaper deal? Whatever questions you might have, our team of Green experts are here to guide you through every step of the way.
Before reading our guide, it’s important to remember that every property sale is different, and the laws differ slightly between regions in the UK. If in doubt, make sure to check in with a solicitor about any of the legal or financial aspects of selling your home.
When moving house, there are plenty of tasks to tick off, with one of the main points to consider being what to do with the mortgage on the property that is being sold.
Do you pay it off by taking out a new mortgage deal, or can you take it with you to your new house? Here’s our helpful list to guide you through your options.
When moving home, you have a range of available options. If you already have a mortgage on your existing property, many lenders allow you to transfer this on to your new home. This is known as ‘porting’ your mortgage. On the other hand, you might find that it actually works better to pay off the mortgage on your old house and take out a new mortgage for the new property.
If you’re on a favourable, low interest rate deal, you may choose to transfer your current mortgage to your new property. Even if you can find better rates elsewhere, porting your mortgage could still be the preferred option as it allows you to avoid some of the fees associated with new home loans.
Before this though, it’s definitely worth checking your mortgage details to find out whether your mortgage is actually portable. You can either look through the documents you were given when you arranged the deal, or speak to your mortgage broker or lender. Some mortgages can’t be ported, so your house sale would have to pay off the existing mortgage and you’d need to take out a full new mortgage.
If porting your mortgage is possible, you’ll still need to reapply for the loan and go through the same affordability and credit checks you initially went through to get the mortgage. Valuation, legal fees and stamp duty taxes will also be incurred during this process.
If you’ve changed jobs, become self-employed, had children or seen some other change in your financial circumstances, you may find it harder to get approved for the same mortgage.
If you’re unable to port your current mortgage, you’ll need to firstly pay off your existing debt from the sale of your old home and then take out a new mortgage for your new property.
Lenders run credit and affordability checks to make sure you’re able to make the repayments. Even if you don’t need to borrow more money for the new property, if your financial situation has changed – for example you’ve recently become self-employed – you’ll still need to prove you can afford the loan.
On top of any arrangement fees for setting up the new mortgage, you might also face early redemption charges for paying off your existing mortgage if you are tied into any introductory period agreements.
If your new property is more expensive and you need to borrow more money for the purchase, you normally have three options to choose from.
This option is probably the easiest way to borrow more money. It leaves you with just one repayment to make each month and saves any early repayment or arrangement fees which might apply when you set up a completely new mortgage. Although lenders might agree to this option, they might end up charging you a higher rate.
If you want to borrow more money, your existing lender might ask you to take out a separate loan to cover the difference. This option can work in some scenarios, but you may end up with two mortgages – meaning paying an extra mortgage arrangement fee and possibly getting locked into a deal with a less competitive interest rate.
If mortgage rates have fallen and you can get a more competitive deal than the rate you’re already on, this might be your best option. Factor in potential early redemption charges on your existing mortgage and any arrangement fees for the new deal, but this option could potentially give you the ability to shop the market to find the best value.
If you need to increase the size of your loan to buy a more expensive property, you’ll first need to meet your lender’s borrowing criteria for the extra amount. This may incur some extra arrangement fees tied to the new mortgage.
As an alternative to porting and increasing your existing mortgage, you may choose to take out a new mortgage with a new provider – if you’re able to find a more competitive deal elsewhere. Be aware that you may need to pay early repayment charges and other fees to end your current mortgage deal. You would therefore need to make a number of careful decisions and calculate which would be the most cost-effective option.
As we covered a little bit before, if your mortgage is portable, you can often move house without changing your mortgage. Your lender will run a valuation on the property and check to see if your financial situation is suitable for you making repayments.
Typically, things are more straightforward if the new home is worth the same or less than your existing mortgage, but if you can manage the repayments you may also be able to borrow more and increase the mortgage.
If you do have to change your mortgage, you’ll generally need to pay off the existing one and you could then face early repayment charges if you’re still locked in a mortgage deal.
If your house has increased in value or if you’ve paid off a chunk of the mortgage, you will have built up equity in your property – the money that would be yours if you sold the house and settled the mortgage. When buying a new home, you’ll be able to use this equity to help with the purchase and either port your mortgage or take out a new loan for the rest.
If you’re moving to a bigger house and need a larger mortgage, you’ll need to prove that you can afford to borrow more. Lenders run financial checks to ensure you’re able to keep up with repayments. You’re more likely to get accepted for a larger mortgage if you’ve had a pay rise or reduced your outgoings, as well as kept up with your existing mortgage repayments.
You may also be able to afford a bigger house by using the equity built up in your existing property as a larger deposit on the new place. This reduces the amount you’ll have to borrow on the new mortgage.
If you’re looking to downsize homes, you should be able to take out a smaller mortgage and reduce your monthly repayments – provided your personal financial situation hasn’t changed.
If you own a significant portion of equity in your home, you may also be able to get a cheaper home (mortgage-free by the way!) by using the equity you have built up in the new property to buy the new home and clear the mortgage.
If your home is in negative equity it’s best to talk to your mortgage provider before moving forward with any home purchase plans. You may find it harder to get accepted for a new mortgage if your house is worth less than your existing mortgage and may also find that you can only move home if you need to move due to a new job. There may be certain restrictions on the type of property you can buy so it’s always worth checking with your provider first.
If you’re moving home and need to take out a new mortgage because you can’t – or don’t want to – port your existing mortgage, you will normally have extra fees to pay. Factor these costs into the overall total of taking out your new deal. Here’s a handy list of what you might need to consider:
Early redemption fees: If you are locked into a mortgage deal, this could mean having to pay an early redemption fee. These fees can come to around 5% of your owed debt. An important cost to keep in mind.
Exit fee: Even if you don’t have to pay an early redemption charge, you may still have to pay an exit fee. Although typically smaller administrative charges to end the mortgage, these can still add up.
Arrangement fees: Your new mortgage may come with an arrangement fee. Differing from mortgage to mortgage, arrangement fees should be weighed up against the interest rate offered to work out whether it’s a good deal.
Booking fee: These are sometimes charged when you apply for a mortgage and are not usually refundable – even if your mortgage falls through. Booking fees can also be included as part of arrangement fees.
Valuation fee: Lenders will value your new property to make sure it’s worth the amount you wish to borrow. Go one step further and pay for a property survey to identify repairs or maintenance that might be needed.
Broker fees: While some mortgage brokers won’t charge you any fees, others may charge you for finding the best new deal. Always factor in this potential cost when compiling your fee lists.
After you’ve carefully considered everything listed in our guide – and the fees associated – it’s always a good idea to chat through your decisions with an expert. Our Green team are always open to any questions and queries you might have about moving home and can offer you market-leading advice. Reach out to them today at greenmortgages.co.uk.
As soon as you’ve exchanged contracts on your new place, get ahead of things and start planning. There’s a lot more to think about than simply getting packed up, so it’s great practice to compile a list of everything you need to get checked off before making the big move.
Let us know what else is on your moving home list in the comments below!
