Many mortgages today are portable, meaning they can be moved from your current property to a new home. It’s not always a straightforward process, though: lenders will want to value the new property, you might be charged a fee to port the mortgage over, and you may still have to pass an affordability check.
What is a portable mortgage?
A portable mortgage is one that can be moved from one property to another – sometimes for a fee and sometimes without, depending on your mortgage agreement. Your first port of call should be to talk to your mortgage lender or mortgage broker to confirm that your mortgage is portable.
If you’re looking to port your mortgage and borrow more money to afford a new property, now’s the time to ask the lender what rate you’ll get. In general, your loan-to-value ratio (LTV) on the new property will play the largest role in securing the lowest interest rate – but hopefully you will have built up some positive equity in your current home (provided its value has gone up) and can use that to reduce your LTV.
The lender will value the new property to ensure there’s enough security for the amount you now want to borrow. You will likely have to pass a stringent affordability check too, especially if your current mortgage is from before the financial crisis. If you go ahead with moving your mortgage, you’ll usually be charged a few hundred pounds in administrative fees.
Porting your mortgage is usually easier and faster than remortgaging – but you might be able to get a better deal by remortgaging.
Not all mortgages are portable. If you cannot port your mortgage to your new property and are still within your fixed or discounted-rate period, you will most likely have to pay an early repayment charge (ERC) – usually 1 to 5% of the outstanding debt – and an exit fee.
If you’re now out of your promotional period and on your lender’s standard variable rate (SVR), you will probably only need to pay an exit charge, not an ERC. Exit charges vary from lender to lender but expect to pay a few hundred pounds. Some lenders ask you pay this upfront when you first take out the mortgage, so do check with your lender so you do not end up paying twice.
ERCs must have been clearly outlined in your contract when you first took out the mortgage, otherwise you may have grounds to claim it back or complain to the Financial Ombudsman as per the Financial Conduct Authority’s (FCA) “MCOB” (Mortgage Conduct of Business) rules.
Look for a better (cheaper) mortgage
If you go down this route, you will need to go through the entire process of getting a new mortgage. First, work out how much equity you have in your current home and whether you have any additional savings to add to the pot. Then calculate how large a mortgage you need for the new property. This will give you the LTV, and from that you can start researching online for the best interest rates. Make sure to keep an eye on the total cost of a new mortgage as some lenders counteract their low interest rates with high set-up fees.
The next step is talk to a mortgage broker, who will take all of your information and hopefully find you an even better deal. It’s worth noting, however, that some banks like First Direct and Yorkshire Bank do not use brokers, so if you’ve seen a more suitable deal with one of them, you might be better off going direct.
While remortgaging might get you a lower interest rate – thus potentially thousands of pounds in saved interest repayments – you will likely be hit with more fees and charges than if you had just ported your existing mortgage. Likewise, if you’re still within the promotional period of a fixed or discounted-rate mortgage, watch out for early repayment charges. Talk to your current lender and find out how much you’ll be charged for exiting your mortgage early; it can be tens of thousands of pounds.
Over the last few years, mortgage lenders have started performing in-depth affordability tests on all borrowers. If you are porting your mortgage and need to borrow more money, or you’re remortgaging, the lender will analyse your finances very closely.
Much like when you first took out your mortgage, the lender will ask lots of questions about your current financial situation and assess whether you could still afford mortgage repayments if the interest rate on your mortgage was to rise by 3% over the lender’s standard variable rate (SVR) – this is known as “stress-testing”, which in today’s market is an interest rate of between 7 and 8%. If you’re on a fixed or discounted-rate of around 2% now, your monthly repayments would almost double.
Ultimately, even if your financial situation is the same or better than when you got your current mortgage, the affordability test could result in your mortgage application being rejected. If that happens, you can: apply with another lender (but be warned that this could hurt your credit score); try to improve your financial situation; or stay put and renovate your current home to build up equity.
Those who are unable to port their mortgage or remortgage and are therefore forced to stay on their lender’s SVR are referred to as “mortgage prisoners“. According to the BBC: “140,000 homeowners are trapped on high interest-rate home loans with unregulated or inactive firms, and are unable to switch to a cheaper deal.” As a result, the FCA is looking at changing affordability checks.
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