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21 October 2020
If you're moving home you face the dilemma of whether to take your existing mortgage with you or get a brand new deal – but the choice may not always be yours. This guide explains the process of porting a mortgage, whether you're likely to be able to do it and if it's the right option for you.
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Many mortgages are 'portable', which means you may be able to transfer your current mortgage product to a new property.
Even if your mortgage is portable in theory, however, you may still be blocked.
Porting is a great flexible feature but there are no guarantees your lender will actually permit you to to do it – and you could end up borrowing at an uncompetitive rate to boot. Here's why...
You have to reapply so may not qualify
When you ask your lender to 'port' your mortgage, you in effect have to reapply for that deal. So, you may not qualify as it is much tougher to get a mortgage now than it used to be (something that's only been exacerbated by the onset of coronavirus). You may struggle if circumstances have changed, eg, you're now self-employed, you earn less or you have more debt and/or outgoings.
Or you might not have changed at all but your lender's criteria has, so even though you got your first mortgage without hassle, it doesn't mean the same will happen again. And if you haven't made all your mortgage payments on time, chances are the lender will refuse in the hope you leave them.
You may not be able to borrow more
If you move to a more expensive property, you may need to borrow more cash but your lender may not allow this if you are already close to the maximum it will lend you.
If you do borrow more, you could end up with two loans
If you move to a more expensive property, as many people do if they're looking for a bigger home, you may need to borrow additional cash. If it is willing to lend, the lender may insist that the additional borrowing goes on another mortgage product, which is likely to involve an arrangement fee and probably a higher rate.
If you do end up on two mortgage products and their initial periods finish on different dates, be aware you may revert to a high rate on the one that ends the earliest.
You could end up borrowing at a poor rate of interest
If you can port and are able to borrow more, remember that you're tied to one lender so you'll have little choice other than to choose from the rates on offer to you. These may not be particularly competitive and could be far from the cheapest best buys available, leaving you stuck paying a higher rate of interest.
Before you commit to selling your property and buying a new one, you should do your checks to see if you are likely to qualify to port your existing deal or get a new mortgage.
If your checks prove you'll be able to port your mortgage, you'll need to start the ball rolling in terms of selling your current property, as otherwise prospective sellers won't take you seriously.
Until you are able to provide the new property address and details, you won't get a definite mortgage offer so be very wary of contractually committing to anything before then.
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You can leave your existing home loan but you'll potentially face huge fines running into thousands of pounds if you do. If you can't afford them, the reality is you face being stuck in your current home. Here are the fees to consider:
An early repayment charge. If you're still within your introductory offer period (eg, a two-year fix) you will almost certainly have early repayment charges to pay. These are usually 1-5% of the outstanding debt depending on how long you have left of your intro deal.
On £200,000, that is between £2,000 and £10,000. If your introductory deal is over, there are unlikely to be any early repayment charges but do check.
An exit fee. When you pay off almost every mortgage (including when you switch to a new lender – as the new provider pays off the debt on the old deal) you also pay an exit fee, which is usually a few hundred pounds. It might be called a deeds release fee or a final fee and you may have already paid it upfront when you took out the mortgage, so do check.
Charges for a new home loan. Once you've exited your old deal, you'll need to pay an arrangement fee and valuation fee for your new mortgage, so make sure you factor these in too.
The key to this will be to look at the maths, and see if it adds up for you. Many borrowers will find that even though they can port their mortgage, the rates on offer won't be that attractive.
If that's the case, it'll be worth seeing if it makes financial sense to pay the penalty for leaving your existing home loan and taking out a brand new mortgage elsewhere.
How long do you have left on your current deal? This affects the fees you'll pay
If you have a few years left on a cheap deal, you are more likely to want to stick with your current mortgage than, say, if you only have a few months to go. This is because the earlier you leave a deal, the heftier the fees. Of course, if you've a long time left on a particularly pricey deal then, even with the fees to switch early, it may be wise to leave – do the maths first.
To find the cheapest option, you need to work out the cost of keeping your current deal and compare it to the cost of ditching and taking a new deal. Make sure you've included the cost of any fees for exiting your current deal and starting a new one – including arrangement fees – in your calculations.
To help decide which new mortgage is best for you, see our Cheap Mortgage Finding article to benchmark a good rate for comparison. The use the 'Should I ditch my fix?' calculator to determine if it's worth ditching the deal for a new one.
If you're not 100% sure what the right thing to do is, speak to a mortgage broker for guidance.
Whichever option you choose, you will need to go through a new application. That means you'll have to pass the following tests, just like you would on any mortgage deal (see Cheap Mortgage Finding for full info):
Does the lender think you can afford the repayments?
It's now far tougher to get a mortgage as mortgage rules introduced in April 2014 mean lenders are required to carefully check you can afford the mortgage repayments – plus the onset of coronavirus has made getting a mortgage EVEN tougher.
You will face closer scrutiny of your finances, including all your outgoings such as gym memberships and childcare, and you will have to provide evidence of your income. Just because you got your previous mortgage doesn't mean you'll be successful again.
Say you borrowed £200,000, which was the maximum you could get a few years ago, you might find that lenders are not willing to offer as much now.
In that scenario, if you're not increasing the debt and you've made all your payments on time, the lender does have the option to waive some of the new affordability rules, but it doesn't have to.
Is your credit score up to scratch?
Your lender will also want to check your credit rating to see how you have handled debt over the past few years. This will include a search of your credit file to see whether you have missed payments on any of your bills. See our Credit Scores guide for more info.
Is the property suitable?
Lenders can also be quite picky about the types of properties they're willing to lend on. Some banks and building societies won't lend on places over a shop or in a high rise, for example.
According to the FCA, there are around 250,000 mortgage holders trapped in their current mortgage deal. If this is you, then you are what is known as a 'mortgage prisoner'.
For mortgage prisoners, stricter affordability tests have made it difficult to switch to new mortgage deals, even though these are CHEAPER than prisoners' current rates. But, in part due to MSE campaigning, the FCA has now called for a relaxing of mortgage affordability tests – hopefully throwing a lifeline for mortgage prisoners. For more on these latest developments, see our news story.
Also see our Boost Mortgage Chances guide to help you get back on your feet as quickly as possible.