If you're moving to a new property, you have several decisions to make.
Many second-time buyers don’t actually realise that transferring a mortgage is a viable option, believing they have to start again with a new mortgage deal. If the value of the current property has gone up, any redemption charges might seem affordable and just part of the costs of moving. Mortgage porting could avoid that unnecessary expenditure and enable you to hold on to a competitive interest rate.
However, take note: firstly, it may not actually be your choice, and secondly, if you can transfer your mortgage, should you?
Read on for a guide that covers how porting a mortgage works, whether it would be a possibility for you and how to assess if it's the right call for your situation.
How does mortgage porting work?
This is a flexible option and appeals to a lot of borrowers, but as with many things, there are potential pros and cons to be aware of.
What are the plus points of porting a mortgage?
Mortgage porting is also well worth looking at if you will incur considerable early repayment penalties for exiting your current deal before a set time has elapsed. Your lender might charge fees for porting your existing mortgage, but these might still turn out to be less than any charges levied for leaving your existing product.
What should I be aware of with porting?
Firstly, even if you've had your mortgage deal for several years and have never missed a payment, when it comes to porting you will still have to reapply for the deal. Lending criteria have become stricter in recent years, which means despite the fact that you got your previous mortgage without any issues, you might possibly find it more difficult to qualify this time around. This is especially something to be aware of if your personal or financial circumstances have changed, for example you have an increased level of debt, or your outgoings have increased as a result of starting a family.
Next, if you are planning to borrow more money to fund a move to a more expensive property, be aware that your mortgage lender might not be in a position to agree. This is especially the case if you are already at the top end of what they're willing to lend. You can use our Mortgage Calculator to get an instant idea as to how much you can borrow.
Then, even if you are eligible to borrow more money, you could find yourself paying off two different loans. For a lot of people, their main reason for moving is to own a larger (and therefore more expensive) home, which usually means an application for additional borrowing. If the mortgage lender agrees to this, they may not agree to increase your existing mortgage and instead stipulate that the extra loan is tied to another, different mortgage product. This will probably include an arrangement fee and is quite likely to have a higher interest rate as well. You will then be making repayments on two simultaneous mortgage products, and it's a good idea to consider whether this is a sensible solution when compared to a single mortgage with another provider.
Ultimately, if you're porting an existing deal and also borrowing more, you'll be restricted to that mortgage lender and whatever rates they are able to offer to you. This might not be the best solution for your situation if you end up paying out more in interest over three, five or ten years when there are much better deals out there.
Another thing to bear in mind...
So, when you're in the early stages of selling your current property and looking around for a new place, this is the time to check if you're in a good position to port your current mortgage deal, or if you should be looking around for a new mortgage. It's best to do this as early as possible so that you're in a strong position to go ahead when you've found that perfect new home and our mortgage experts can help with that.
If I can't port my mortgage, should I switch to a different deal?
Most mortgages have an exit fee for paying off the current mortgage and releasing the deeds (although some mortgage lenders demand this payment when you first take out the product, so check to see if you've already paid it). If you're changing to a new lender this also applies and it could cost you several hundred pounds. And you also need to take into account the fees for your new mortgage: that's an arrangement fee for the actual product, plus a valuation fee for your property. Product fees for new mortgages can be pricey, often going over £1000.
If you wish to consider this option, our mortgage brokers can advise on the best deals available and assess whether the short-term costs are worth the long-term gains.
I qualify to port my mortgage, but is it the best deal?
If those rates aren't attractive enough, it is definitely worth shopping around to see if it's more financially prudent to pay any charges for exiting your current loan and then take out a new mortgage product with a different lender.
Two major factors are the competitiveness of your existing deal and the length of time you have left on it. As we discussed earlier, the latter issue affects the fees that you're liable for: the earlier you exit a mortgage deal, the higher the early repayment charges. If, for example, you still have six years left on a ten-year fixed rate deal, you're probably more inclined to stay with that mortgage product than if there are only a couple of months left before the introductory rate expires. However, you should still do your sums: if mortgage rates have become much more competitive since you took out your current loan, you may find it's best to take the hit on the early repayment fees and switch to a different product rather than being tied into a comparatively expensive deal.
Essentially, to find the best-value option, you have to consider all the costs involved in sticking with your current mortgage product, and then compare them to the costs of walking away and finding a new loan. Those costs are both the charges for leaving the existing deal, and the fees charged for opening a new one.
So what are my next steps?
Firstly, does the lender believe you have the ability to make the repayments?New mortgage rules that came into force in 2014 require lenders to make detailed checks of your financial situation to ensure you can afford the monthly payments. This includes all of your outgoings, from utility bills and car loans to childcare fees and even gym membership. You will also need to provide proof of income, for example, several months' worth of payslips and P60 forms.
Because of the more stringent checks, there is no guarantee that you will be approved, even if you successfully got a mortgage previously for a similar amount. However, if you're porting your existing mortgage and you have a good history with no missed payments to your current lender, the lender might be able to waive some of the affordability guidelines that have been implemented.
Secondly, what sort of property are you planning to purchase?Some lenders won't offer mortgages on particular types of property, for example, flats in a high-rise building or above a shop.
Finally, the mortgage lender is going to check your current credit ratingThis is to establish how well you have managed any debts in recent years. This includes looking at your credit file to check for any missed payments on bills, loans or credit cards. It's a good idea to ensure your credit score is in good order before applying for a mortgage; if you are able to plan in advance in the months and years leading up to your move, maintaining a good credit rating will greatly help your application.
We can help
Because we play by the book we want to tell you that...
Your home may be repossessed if you do not keep up repayments on your mortgage.
There may be a fee for mortgage advice. The actual amount you pay will depend upon your circumstances. The fee is up to 1.5%, but a typical fee is 0.3% of the amount borrowed.