Moving house marks an exciting new chapter in life, but it also brings important financial decisions, particularly regarding your mortgage.
Understanding how mortgages work when you move is essential for a smooth transition to your new home. This article will guide you through the process, explaining your options and what to expect along the way.
When you decide to move house, your mortgage doesn’t automatically move with you.
Instead, you have two main options: porting your existing mortgage or applying for a new one.
Each option has its own merits and considerations, and the best choice depends on your current mortgage terms, financial situation, and the property you’re buying.
Porting Your Mortgage
Porting your mortgage means transferring your existing mortgage deal to your new property.
It’s the interest rate product that you take with you. You keep the same interest rate (fixed etc) and the same end date.
This option can be attractive if you’re satisfied with your current interest rate and want to avoid early repayment charges. Porting allows you to keep your existing mortgage terms, which can be particularly beneficial if you secured a competitive rate that’s no longer available on the market.
However, porting isn’t guaranteed.
Your lender needs to reassess your financial situation and the new property, treating the port as a new mortgage application. If you need to borrow additional funds for a more expensive property, this extra borrowing will be at a different interest rate, resulting in a split mortgage.
Read more: What Does Porting a Mortgage Mean?
Getting a New Mortgage
Applying for a new mortgage when moving house offers the opportunity to explore the current market and potentially secure better terms.
This option might be preferable if your financial situation has improved since you took out your original mortgage, as you might qualify for more competitive rates.
A new mortgage allows you to reassess your needs, perhaps switching from a variable to a fixed rate for more stability, or finding a product with flexible features like overpayment options. However, be mindful of potential early repayment charges on your existing mortgage and the need to meet new lending criteria.
How do you decide?
Choosing between porting your mortgage and getting a new one and going with a new lender is not always straightforward.
It depends on various factors, including your current mortgage terms, financial situation, and the property you’re buying. To make the best choice, you’ll need to consider the costs and benefits of each option.
Start by reviewing your current mortgage deal.
Look at your interest rate, remaining term, and any early repayment charges. Then, compare this with what’s currently available on the market.
If your existing rate is competitive and you’re happy with the terms, porting might be the best option. However, if you can find a significantly better deal elsewhere, a new mortgage could be more beneficial, even after accounting for any exit fees.
This is where a mortgage broker can be invaluable.
A broker can conduct a comprehensive comparison of your current mortgage against the latest market offerings. They have access to a wide range of lenders and deals, including some that aren’t available directly to consumers. A broker will take into account your specific circumstances, such as changes in your income or credit score, and how these might affect your options.
A broker can also help you understand the full cost implications of each choice.
They’ll calculate not just the monthly repayments, but also factor in any arrangement fees, valuation costs, and potential early repayment charges. This thorough analysis ensures you’re comparing like with like and can see the true cost over the life of the mortgage.
Moreover, a broker can offer insights into lender criteria that might not be immediately apparent.
For example, some lenders might be more accommodating if you’ve recently changed jobs or have a complex income structure. This expertise can be particularly helpful if your circumstances have changed since you took out your original mortgage.
PORTING
Taking Your Current Mortgage with You
The porting process begins with notifying your lender of your intention to move.
You’ll need to complete a new application form as your lender reassesses your circumstances. Eligibility depends on factors such as your current income, expenses, credit score, and the type and value of the property you’re buying.
Steps typically include:
- Notifying your lender
- Completing a new application
- Providing up-to-date financial information
- Credit checks
- Property valuation on your new home
- Lender’s assessment and decision
- Aligning the porting process with your house purchase timeline
Challenges can arise with timing and additional borrowing. Some lenders offer a ‘port and hold’ facility if there’s a gap between selling and buying. If you need to borrow more, the additional amount will be at a different rate, resulting in a split mortgage.
NEW MORTGAGE
Starting Fresh with a New Lender
The application process for a new mortgage involves gathering necessary documentation, including proof of income, bank statements, and details of your assets and liabilities. The lender will conduct a thorough affordability assessment and a valuation of the property you’re buying.
Required documentation typically includes:
- Proof of identity and address
- Income proof (payslips, tax returns for self-employed)
- Recent bank statements
- Details of any other properties owned
- Information about the property you’re buying
One key advantage of a new mortgage is the potential for more favourable terms or flexible features. However, consider the overall cost, including any fees, not just the interest rate.
Coordinating Your House Purchase and Mortgage
Timing is important when moving house and arranging a mortgage.
Obtaining a mortgage Agreement in Principle (AIP) before house hunting can help focus your search and demonstrate to estate agents that you’re a serious buyer. An AIP typically lasts for 3-6 months and doesn’t commit you to a specific lender.
Managing your current mortgage end date is another important consideration.
Moving near the end of your fixed or discounted rate period could help you avoid early repayment charges. However, if you’re midway through a fixed term, weigh these charges against the potential benefits of moving to a new lender.
Remember that mortgage offers usually last for three to six months. If your purchase takes longer, you might need to reapply or request an extension.
Costs to Keep in Mind
When moving house and dealing with mortgages, there are several financial considerations to keep in mind.
Early repayment charges can be a significant cost if you’re leaving your current mortgage before the initial deal period ends. These charges can amount to thousands of pounds, so it’s essential to factor them into your calculations.
Valuation and legal fees are other costs to consider.
When you apply for a mortgage, the lender will require a valuation of the property you’re buying. Some lenders offer free valuations, while others charge for this service. You’ll also need to pay for legal work, known as conveyancing, to handle the property transfer.
Stamp Duty Land Tax is another potential cost when buying a property. The amount you pay depends on the property’s value and whether you’re a first-time buyer or buying an additional property. Make sure to budget for this tax, as it can be a substantial amount.
Moving house and dealing with the mortgage process can seem complex, but understanding your options and the steps involved can make the journey smoother.
Whether you choose to port your mortgage or apply for a new one, each option has its own benefits and considerations.
Remember that your personal circumstances, including your financial situation and the properties involved, will play a significant role in determining the best course of action. While this guide provides a comprehensive overview, mortgage products and regulations can change, and individual situations vary.
For tailored advice specific to your circumstances, it’s advisable to speak with a professional mortgage adviser like Drake Mortgages.
We can help you understand your options in detail, guide you through the application process, and potentially access deals that aren’t available directly to consumers. With the right guidance and preparation, you can confidently manage your mortgage when moving house, taking another step towards your new home.