Moving house can be a really exciting time; scouring RightMove for potential new homes, heading to viewings and finding ‘the one’, and then getting your own house up on the market to sell. Amongst all of this, however, it’s really important to decide what your next move will be in terms of your mortgage. Should you find a new mortgage deal, or try to port your existing one?
How does mortgage porting work?
Most house owners buy their homes with the help of a mortgage. There is a wide range of mortgage facilities available to help homebuyers, many of which offer discounted or fixed interest rates for an initial fixed term. These can be very attractive, as they limit your exposure to potential rising mortgage costs during the initial fixed term. They are, however, a fixed contract between you and the lender and if you need to break this agreement during the term – such as if you decide to sell and move house – then the lender will often charge the borrower quite heavy exit charges as compensation for breaking the deal.
You may be able to avoid some or all of these charges by sticking with your current lender and taking a new mortgage deal from them, or by porting your existing deal to your next property purchase. Porting might be especially attractive if your current deal has a particularly low discounted or fixed rate compared with other current deals available.
In practice, when porting, you still need to apply for a new mortgage on your new home. This is because it is not the loan itself that is transferring – it is the rate and the terms and conditions of your mortgage product, which you take with you. When you sell your house, your existing mortgage must be paid off in full and then a new mortgage will need to be taken out against your new property.
Mortgage porting is often described as taking your mortgage with you to a new property, however, it can be better described as repaying your existing mortgage from the sale of your current property, and transferring the mortgage deal, on the same terms, to your new property. You stay with the same lender, on the same rates and conditions. Your lender will need to arrange a valuation of the new property and then run a new set of affordability checks to review your financial and employment circumstances to make sure that you can still afford to meet the repayments. If they agree to give you a mortgage against your new property, they may also agree to transfer or ‘port’ your current rate and terms from your previous mortgage facility to your new mortgage.
How does porting a mortgage work if you’re moving to a more expensive property?
When people are looking to move house, they generally end up moving to a larger and more expensive property. In these cases, they may have to borrow more money to complete the purchase – unless of course, they have got the cash to cover the difference in cost. If you are wanting to port your current mortgage deal, but need to borrow more to make the purchase, you may need to take out a second mortgage with your lender for the difference – a ‘top-up’ mortgage product.
Here’s an example: let’s say your home is worth £100,000 and you have a mortgage for £75,000 i.e. 75% loan to value (LTV). If you want to move to a home costing £160,000 and port your existing mortgage deal, then you would only be able to borrow the same £75,000 on your current deal, and either have to find an extra £60,000 cash contribution or take an additional ‘top-up’ mortgage product of £60,000.
In the above example, your top-up mortgage would take your total mortgage borrowing up to around 85% of the value of the property. As a result, the top-up mortgage product would be based on rates and products available to 85% LTV deals from that lender, so will probably be at a higher rate than deals for 75% LTV mortgages. Top-up mortgage deals will differ between mortgage lenders, so it’s important to find out what your current lender’s policy is, and remember you’ll probably be restricted on rates and the types of deals they have available.
Before deciding to port your existing mortgage, shop around and check the interest rates and deals currently available for your situation – just to be sure that you are going with the best deal that you could be. If you’re not, it might make sense to exit your current mortgage and find yourself a new one. Remember, however, to take all the fees into account, including any exit fees or breakage costs for your current mortgage, as well as any arrangement and valuation fees for the new one. This way, you’ll be able to work out what is truly the cheapest option.
What about porting to a cheaper property?
Porting can be slightly more straightforward when moving to a cheaper property, however, you will normally be subject to an early repayment charge as you will be reducing your loan amount. You will effectively be paying off part of your mortgage early.
Let’s look at an example. If your existing property value is £250,000 and your current mortgage balance is £200,000. Your LTV is 80%. If you’re moving to a property that’s valued at £210,000, you would normally be expected to transfer the equity available from your current property (£50,000) to the new property and apply for a new smaller mortgage facility of £160,000 (76% LTV).
With this example in mind, you could be faced with an early repayment charge because £40,000 of the loan has been paid earlier than anticipated. The LTV remains at a similar or slightly lower level than previously, so the lender should be happy to port the current deal over to the new property.
Remember, porting only really applies where you currently have a non-standard mortgage deal, which you want to keep, such as a discounted or fixed rate deal. If your mortgage is currently on a standard variable rate (SVR), then you won’t have any breakage or early repayment charges and you can simply move to a new facility with the same, or a different lender. Speak to us at Mortgage Light and we’ll be able to review your current arrangements and give you advice and guidance about repaying your existing mortgage and your options going forward to finance your next purchase.
Should I port my mortgage?
As you may have guessed, there are pros and cons to porting your mortgage. Whether or not you should do it depends on your own individual circumstances and the mortgage deal you currently have in place. A few things to consider might be:
- Will there be any costs of breaking your current deal?
- Is your current deal significantly better than alternative deals currently available?
- How long is there remaining on your current deal? (If it is only a few months then the charge for breaking it may be very small, but if it is a relatively new deal then the exit fee could be quite substantial)
- Does your current mortgage lender allow porting?
- What sort of top-up facilities can your current lender provide for any additional borrowing
You’ll need to do some investigations, as well as some maths to fully assess your options before making a decision. So, before you go ahead and sell your property and purchase a new one, check if you are qualified to port your existing deal or whether you’d be better placed getting a new one.
If you need some advice and help doing the maths and comparing the options, then let us help you. At Mortgage Light, we have years of experience helping our customers move house and port their mortgage. Contact us today and arrange to speak to one of our expert team members.