If you’re buying a new house and already have a variable rate, fixed rate or tracker mortgage, you may want to think about whether you can - or want to - transfer that mortgage to the new property when you move. This transfer process is known as ‘porting’.
But what happens if your income has drastically fallen or your credit score has taken a hit? Can you still port a mortgage if your circumstances have changed and if so, how?
What does porting a mortgage mean?
Porting means your existing mortgage rate and all of its terms and conditions go with you when you move. The good news? If your current mortgage deal includes early repayment charges, you wouldn’t have to pay them when porting.
The majority of mortgages are portable, so you can usually consider this option when looking to move house. However, there are a number of factors to bear in mind if you’re considering this route, so it can be helpful to speak to an expert who knows the process inside out.
What advantages are there to porting a mortgage?
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 some of the information that they need.
What disadvantages are there to porting a mortgage?
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 valuation fees, arrangement fees, legal fees and possibly a small exit/transfer fee.
If the property you want to buy 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 so always seek professional help.
Calculating whether or not you should port your mortgage can be time consuming and if you’ve never done it before, it can be handy to work with an expert who will be aware of what constitutes as a good deal for you or not.
Our mortgage advisers can offer an expert view on the products currently available and how they compare to your existing deal.
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’s just the rate, terms and conditions.
It’s only when your mortgage lender has gone through all the standard checks and processes and confirmed that they’re happy to continue lending to you, that they will consider porting your existing mortgage deal.
What happens when I apply?
Your mortgage lender will assess your income, your expenditure and your personal circumstances to see if you meet their current criteria for lending. Some or all of these may have changed since you last applied for a mortgage (for example, if you have had a pay rise or started a family).
You may also want to borrow additional funds, which has to be taken into account. If you want an instant estimate as to how much you can borrow based upon your household income, you can use The Mortgage Hut's mortgage calculator or ask one of our advisors to do it for you.
The lender will also undertake a survey and valuation of the property you plan to purchase before making a final decision. Once they agree to port your mortgage deal, you would normally complete the purchase of your new property and pay off the mortgage on the old one on the same day, thus ensuring a seamless transition.
However, as this isn’t always possible, a significant percentage of lenders will still allow you to port your mortgage product provided that you complete on the new property within a certain period of time after redeeming the old mortgage. This period would probably be in the range of 30 to 90 days.
Will I still be subject to a credit check?
Yes. As described above, this is effectively a new mortgage application and subject to the usual credit checks. As your lender will run an affordability check based upon their current lending criteria, it’s a good idea to plan ahead and maintain a good credit rating in the period leading up to your move.
You will also need to provide supplemental documentation which may include:
Several months’ proof of earnings
What if my credit score 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.
What other factors can affect my ability to port a mortgage?
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 4.5 times the annual income of the applicant (so someone earning £30k will be able to borrow a maximum of £135k). There are a number of lenders who will lend more in the right circumstances.
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 if you are newly self-employed, unemployed, on long-term sick leave, or about to change jobs but that doesn’t necessarily mean that it’s impossible. Ask an adviser about the best route for porting a mortgage here.
Whether you’re retired or approaching retirement
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 part of your mortgage early, this will increase the chances of your lender approving your application.
What if I’m moving to a more expensive house?
If you need to borrow additional money to move house, porting could still be an option for you, although additional lending won’t necessarily have the same interest rate as your ported mortgage.
Your lender will offer a deal from the current product range, which may not be as competitive as options from other lenders and leaves you with two different loans with potentially different end dates.
Can I port my mortgage if I’m moving to a lower value property?
Porting may work for you if you’re planning to downsize or move to a less expensive area, and you don’t intend to ask for any additional funds. You will still be required to pay a valuation fee for the new property, but will avoid other fees such as arrangement costs and early repayment charges, and should be able to port your current deal in a fairly straightforward manner.
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.
Here’s 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.
Therefore, keep in mind that there is also no 100% guarantee that your current lender will approve the ported mortgage, even if you don’t need to borrow as much money as you did previously as your financial and personal situation may have changed since that original loan.
When should I not consider mortgage porting?
It may not be worth porting your mortgage if you aren’t facing early repayment or other fees for exiting your current deal, or if your existing mortgage isn’t particularly competitive compared to other rates now available.
Ensure that you check you’re on the best possible deal before you embark on mortgage porting. Take into account all the costs - not only exit penalties for your existing deal, but all the arrangement fees, booking charges and valuation fees that apply to a new mortgage.
Who can help me?
A mortgage broker that specialises in porting mortgages will know the lenders that are more likely to accept borrowers with adverse credit ratings.
They may also have access to some other financial products that can only be accessed through intermediaries, so it’s always worth asking an adviser to assess all of the options and point you towards the most competitive deals. Why not call The Mortgage Hut today on 0300 303 2640 or make an enquiry?