There are over 11 million mortgages in the UK, valued at a staggering £1.3 trillion. If you are already a mortgage holder yourself and your circumstances change - perhaps you want to move to new property? What are the options open to you in terms of your mortgage?
When looking to move house, it is actually possible to transfer your existing mortgage - this is known as ‘porting’.
So how does porting a mortgage work if you are moving to a more expensive property? What about to a cheaper one? Do the lending criteria differ from applying for a new mortgage? What about the implications of a poor credit rating? What restrictions are there, and what are the rates likely to be?
Your existing mortgage provider may well agree to port your mortgage to a new property but it is likely that they will want to review your financial/employment circumstances. If your income has drastically fallen or your credit score has taken a hit, they might decline your application. This is unlikely, but if it does happen - don’t panic, there will be other options available.
So how does mortgage porting work?
When you sell your existing home and look at buying a new one, you will still need to apply for a mortgage. This is because the loan itself is not what transfers; it is the rate and the terms/conditions. As part of the moving process, your existing mortgage is paid off in full and a new mortgage is taken out against the new property. If you port your mortgage, you may get to keep the same lender, rates and conditions.
The lenders will arrange a valuation of the new property and will then run a new set of checks to ensure that you can afford to meet the repayments. If they agree to give you a mortgage against your new property, they will then process it so that the same rate and terms from your previous mortgaged are honoured.
Pros & Cons
- You will not be required to pay any mortgage exit fees/early repayment charges. This is because you will most likely be keeping the same terms with the same lender.
- If your initial mortgage is at a lower interest rate, you will carry on paying that low rate at your new property. This is great if interest rates have increased since you first took the mortgage out.
- You won’t need to go through the entire mortgage application process again as the lender will already have all the information that they need.
- There is a chance that by staying with your existing lender and rates/terms, you might be missing out on more favourable terms or rates elsewhere. If there are significantly better deals available elsewhere, you could perhaps look at remortgaging rather than porting.
- If porting, you will still have certain additional fees to pay, including a valuation fee, arrangement fee, legal fees and possibly a small exit/transfer fee. Make sure these don’t outweigh the amount that porting will save you.
- If the property to which you are moving is more expensive than your current one, any additional money that you need to borrow is likely to be at a different rate. This may mean that, in effect, you have two mortgages/products with different rates and different end dates. This can make it tricky if you're wanting to remortgage with a different lender.
How easy is the process?
Mortgage porting can be slightly different with each different lender, but overall it is generally a fairly straightforward process, certainly less complex than applying for a mortgage for the first time. Your lender will probably require you to pay off your existing mortgage and complete on your new property on the same day although some may give you a grace period of up to a month.
Moving to a cheaper property
Because you do not need to borrow more money than your current loan, if you want to downsize/move to a cheaper property, porting is likely to be relatively simple. You will still need to go through the standard process but it is less likely that there will be delays or issues. The only caveat to this would be where you wanted the loan value to remain the same when moving to a less valuable property. This is because from the lenders perspective, the risk associated with the loan may actually increase.
As an example, say your current property is worth £200k, with £150k mortgage against it. This gives a loan to value (LTV) of 75%. If you want to keep the loan amount at £150k but the new property is valued at only £175k, the LTV increases to over 85%. This may be seen as a problem by the lender, who may insist on a reduction in the loan to maintain the current LTV. They may also insist on some of the mortgage being repaid in order to maintain the LTV. Paying off some of the mortgage in this way is not necessarily a bad thing as it can help to reduce the monthly mortgage payments which can be especially useful for anyone who has seen a reduction in income.
Moving to a more expensive property
Transferring a mortgage to a more valuable property than your existing one will involve a valuation and then an assessment of your current financial situation by your lender to establish whether they feel you can afford the subsequent increase in your regular repayments.
When assessing your situation, your lender will look at a number of factors including, but not limited to, your credit history, the property type, your income and outgoings, your age, and your employment status. Provided that you still meet their eligibility criteria and can show that you can comfortably afford the repayments, most lenders should be happy to grant you a mortgage against the new property.
It is likely that any extra that you borrow will actually be via another mortgage product, which could well incur an arrangement fee and is likely to be at a different (potentially) higher rate than your current one. If this is the case and you do end up with two mortgages, they may finish on different dates which could mean that when the earliest one ends you will have to then pay the higher rate only.
If you are in a position to put in the extra cash then you should theoretically be able to port the amount you currently owe to the mortgage against the new property, thus maintaining the existing rate and terms/conditions.
If you are wanting to move to a more expensive property than your current one, it is worth looking at whether or not it would be cheaper in the long-run to remortgage with a new lender. Even if they offer a lower rate, you will need to take into account the fact that moving mortgages can cost thousands in fees, thus potentially rendering any savings from a lower rate obsolete.
What if my credit score/rating is poor?
All lenders understandably see borrowers with poor credit as being riskier and consequently may need a larger deposit from such applicants or might even reject an application due to a poor credit rating.
So, if your credit rating has fallen and especially if you have had recent credit issues, there is no guarantee that your mortgage lender will agree to port your mortgage. However, if you are wanting to downgrade or move to a property of equal value and do not need to borrow extra, the lender may consider porting anyway, considering the fact that the debt is already in place.
If you are hoping to port and borrow extra, but have experienced recent financial difficulties, then you may be rejected. People with recent mortgage defaults or those who have ever had a property repossessed are unlikely to be accepted by mainstream lenders; neither will those who have been declared bankrupt.
Does property type matter?
The more unusual a property is, the trickier it may prove to be to sell. This is therefore seen by lenders as higher risk because the situation may occur where they have to repossess and sell. Some lenders may be slightly more flexible and might ask for a larger deposit to offset the greater risk they foresee with an unconventional property so it is by no means impossible.
Income and employment
It may be the case that the lending criteria have changed since you first took out a mortgage and clearly this can have an impact on how much you are able to borrow.
Lenders use their own complicated formulae to calculate affordability but it is possible to get a rough idea as to how much you can borrow by working out your annual income and then multiplying it by a given factor. Most lenders will not lend in excess of 4 times the annual income of the applicant (so someone earning £30k will be able to borrow a maximum of £120k). There are a small number of lenders who will lend more in the right circumstances.
Lenders also take into account your employment status. If you're employed, they will want to know about your basic salary, how long you have been in the role and if you receive any bonuses. If you have only recently started a new job, lenders will be dubious about lending - they usually prefer it if you have been in the same employment for at least twelve months. If you are self-employed, most lenders will want two or three years of full accounts to prove that your income is consistent.
It is unlikely that you will be successful in your application to port your mortgage if you are newly self-employed, unemployed, on long-term sick leave, or about to go on maternity leave.
Mortgage porting if you are retired
If you are retired, you may still be able to port your mortgage, especially if you are near the end of the term and/or have paid off the majority of the mortgage against your existing property.
Most lenders have an upper age limit of 75 whilst some will also take into account the age you will reach by the end of the mortgage term. If you have savings and are able to pay off off part of your mortgage early, this will increase the chances of your lender approving your application.
- How long does the process take?
Generally speaking, porting a mortgage takes between 30 days and three months.
- Can I port if I am in a negative equity situation?
It is unlikely that you will be able to port a mortgage in this situation.
- Can I port an interest-only mortgage?
Some lenders will allow this provided that the applicant can show that there is a viable repayment strategy in place.
- How much does it cost to port a mortgage?
Ask your current lender about the costs involved with porting your mortgage in terms of any early repayment charges, arrangement fees, or other charges.
- Who else can help me?
It is advisable to speak to a mortgage expert or broker if you are looking at the possibility of porting your mortgage when you move. They will have knowledge of the lending criteria of all the major lenders and may also have access to some other financial products that can only be accessed through intermediaries. They will also know the rules around self-employment income certification and how to deal with adverse credit ratings.
- Why not contact our friendly team today for further information and advice?
Make sure you think carefully before taking on any debt. As a mortgage is secured against your property, your home is at risk of repossession if you do not keep up your repayments.