Record UK mortgage lending which hit £17.9bn in June reflects a booming housing market.
It’s not just first-time buyers who are desperate to buy. The prospect of continually rising prices have meant that many people are keen to move while the next rung of the housing ladder is still in reach. But what can you do if you have found your next home – but are tied into your current mortgage?
At Continuum we are looking at the answers.
Tied to a fixed rate deal?
Most people buying a new home will be keen to get the lowest rate. In many cases, this will mean a fixed rate introductory deal.
The fixed rate period can run for anything from one to five years, with some lenders now offering up to ten years. During that time, you will enjoy guaranteed interest rates whatever happens to the UK economy.
But as with most benefits, there is a potential downside. In return for an incentivised rate, your lender may apply an early repayment charge if you decide you want to change your mortgage. These can range between 1% and 5% of the outstanding mortgage amount.
If you want to move or remortgage early, you have a substantial penalty to pay.
If you are planning a move, a penalty might mean that your fixed rate deal would prove expensive.
What can you do?
The good news is that moving home does not necessarily mean that you will be saddled with these costs. Many lenders will allow borrowers to move their mortgage to another property without charging these fees, in a process known as ‘porting’. Hence the concept of a portable mortgage, that moves with you to your new home.
You will need to have your new home valued, but if everything is comparable, you can simply take your mortgage with you. Ideally, there would be no break between your sale and the completion of the new purchase. If there is a delay you may be able to put your mortgage on hold, pay the penalty and then restart and reclaim the cash when your new purchase is complete. The arrangements vary between lenders but many will give you 60 or even 90 days to do this.
If your circumstances have changed
The process can be straightforward, but there may be some issues that you need to be aware of. When you port a mortgage, it will be treated like any other mortgage application. Although your deal remains the same you will have to meet your lender’s criteria at the time of application. If your circumstances have changed, so that your income is very different, or if you are an upsizer who needs a bigger loan, porting your mortgage can become much more complicated.
If you don’t meet your lenders criteria, you might need to look elsewhere for a mortgage anyway.
But the real questions start coming in if you need to up your borrowing.
Porting your mortgage may limit the chances of getting the most appropriate deals on the market, as any additional borrowing would need to be taken from your existing lender. Switching to a new fixed term deal could potentially outweigh any early repayment charge
Mortgage rates have hit record lows for those with significant equity built up in their homes. This means that you might be better off switching to a new mortgage deal from a new lender and paying the early repayment charge. Even with a large penalty to pay you could find that you were actually better off.
Getting some expert help
To understand whether you might be better off porting your mortgage, or need to start again with a new lender, you need an independent expert. At Continuum we can look at your personal circumstances as well as all the deals available. We can help you see whether your mortgage should move with you or find you a better deal.
We search the entire mortgage market to find a solution to your needs. Contact us to arrange an appointment with a Continuum mortgage expert
Not only can we take an independent look and compare all the offers from the major lenders, we have access to products that are never advertised and are only available to advisors
The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable mortgage products, you should seek independent financial advice before embarking on any course of action.
Your home may be repossessed if you do not keep up repayments on your mortgage.