Home Mover Mortgages
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YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE
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Home Mover Mortgage
What do we mean by a home mover mortgage?
It’s a mortgage for people that are moving home. There are usually two options we can look at when someone’s moving home. The first is to take out a new mortgage.
Perhaps the property you’re in at the moment doesn’t have a mortgage on it, and if you’re upsizing to a new place we’d be taking out a new loan. It might be that you do have a mortgage on your existing property but the plan is to repay that one and take out a new loan when you move.
The other option is to transfer the mortgage on your current property to the new home – that is known in the industry as porting.
What is porting?
Porting is when you transfer the mortgage product that you’re currently on to a new property. You’re transferring the product rather than the loan. The mortgage is still seen as a new loan, and it will require full underwriting and full valuation from the lender.
They will look at your income and outgoings to check the affordability of the loan just as they would for a brand new mortgage. The thing that comes with you is not the loan but the product itself.
You might be on, for example, a five-year fixed rate that has two years left to run. You transfer that product to the new mortgage. The advantage is that if there are early repayment penalties attached to that product, you won’t pay them if you take it onto a new property.
That’s the main reason we see people porting a mortgage when they move house – they’re within a fixed rate period and penalties would apply if they were to redeem that loan. So instead of paying it off when they sell the property, they just transfer the product to the new house.
What are the costs to consider when moving home?
If you’re looking to move property, the big one is going to be the stamp duty. That’s certainly something you need to factor in.
Other things include your solicitor fees. If you’re buying and selling property, this will be almost double, depending on the arrangement you come to with the solicitor. They’re doing twice as much work on the sale of your existing property and the purchase of the new one.
There will also be survey fees. There are a couple of different types of valuation and survey. If you’re taking out a mortgage on the new property, the bank will do their own valuation to make sure that the property is suitable security. The lender will cover the cost of that valuation – it’s usually free. A couple of lenders charge a nominal amount.
It only starts to cost you once the property values go up above £1.5 million – so it’s something to consider if you’re buying at the higher end. On top of the mortgage valuation, you will probably want to get your own survey done. If you’re buying a freehold house I definitely recommend getting a survey.
There are various types you can do. The Royal Institute of Chartered Surveyors (RICS) have three levels with varying degrees of thoroughness, which obviously go up in cost. But if you factor in around £1,500 for a private survey to check the condition of the property then that’s probably sensible.
I moved a couple years ago and something else to consider is the cost of removals. Costs depend on the size of the property, the amount of furniture you’ve got and whether you choose the full packing service. You could just hire a van and do it yourself which I’ve done in my younger days – but it’s not something I would choose to do now.
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How much can I borrow to move house?
That obviously determines the budget for the next move. You need to speak to a broker because everything depends on your individual circumstances.
There are two main calculations that the lenders will make and one or two limiting factors. The first is Loan to Income – the maximum multiple of your income that the lender will apply. It’s usually between 4.5 and 5.5 times your salary.
The deposit percentage that you’re putting into the property will affect your borrowing too, and again that will vary across different lenders. Some of them even look at the product length you take.
The second big factor is the affordability assessment. Essentially they’re looking at all your sources of income and your committed expenditure – and how much you have left over each month. From that they’ll work backwards to determine the maximum loan they think you can afford.
So there are two different assessments lenders will apply and each uses their own different calculations. There is no kind of standard answer – it all depends on your individual circumstances as well as different types of income.
Some lenders will use 100% of any bonus you receive, some will use 50%. There is massive variation across lenders and client types. That’s why it’s always best to speak with a broker. We can give you specific, tailored advice.
How does the equity in my home affect my options?
The amount of equity that you have in your property obviously determines the funds you have available to purchase onwards. The proceeds of the sale plus any savings you put towards the new purchase will cover the deposit and moving costs like stamp duty and legal fees.
Another thing your equity will determine is the Loan to Value ratio on the new home. The mortgage rates you’ll have access to will be a factor of the Loan to Value, which is the percentage of the property value that the mortgage makes up.
As buyers we typically look at things the other way around. We talk about the percentage of deposit – for example, if we’ve got a 25% deposit, lenders call that 75% Loan to Value.
The higher the Loan to Value, the less deposit you’re putting down and the higher the interest rate will be. Smaller deposits and higher Loan to Value means there’s less of a buffer for the lender.
If you default on the mortgage, they would need to repossess the property and sell it to get their money back. If you’re borrowing 95%, it doesn’t take a big drop in property value to put them in negative equity. If you’re borrowing 50% and you’ve got a 50% deposit, there’s obviously a much bigger buffer for the lender.
How can a mortgage broker help with a home mover mortgage?
A really important aspect is making sure you plan ahead when you remortgage. For example, if an existing client is coming to the end of their fixed rate mortgage and wants to move onto a new product, we’ll ask whether they are planning on moving at some point in the next couple of years.
If they do want to move, we would always advise against tying into a product that has penalties for early exit. The majority of high street banks will have a portable option on their product, so if you take a fixed rate with them, the product may be portable.
Then, if you plan on moving at some point you can transfer that mortgage to the new property. It’s useful if you find that your plans change during a fixed rate period and you’ve got no option but to transfer that mortgage to avoid paying any earlier repayment charges.
However, if you think you’re likely to move at some point I would not rely on porting your mortgage as a strategy. It’s not guaranteed that you’ll be able to transfer that mortgage to the new property. Although the product itself will be portable, it’s treated as a new mortgage. It might be that the lender isn’t happy with something about the move. Your employment circumstances might have changed or perhaps the property is not within their criteria.
You would then have to pay an early repayment charge on your current mortgage and take out a new one. I had a case in the past that looked like a fairly straightforward transfer to a new property, but it had outbuildings and the lender wasn’t happy. We had to redeem that mortgage, pay the charge and take out a new loan.
You’re also restricted to using that one lender, so when you come to move, you’re looking to maximise your borrowing and stretch the budget as far as you can, perhaps so you won’t have to move in future. But then perhaps the lender you’re currently with only offers 4.5 times income. Other lenders out there will do 5.5. times and you’ve forgone that opportunity by tying in with a lender with lower income multiples.
Another reason not to rely on porting is that the product will only apply to the level of borrowing you already have. Say you are upsizing and your current loan is £500,000. You want to borrow £1 million.
You can only transfer the mortgage product for that £500,000. The additional £500,000 will need to be taken on a product available from that lender’s range at that point in time.
You can’t go out to the market and see who’s offering the best deal.
You would also end up with one mortgage with two separate loan parts, each with a different end date. So at some point you’re either going to have to pay an early repayment charge on one loan part or move onto the standard variable rate until the end dates on those two products line up.
If you want to move at some point and you’re coming up to the end of a fixed rate, it’s better to move onto a product that has no penalty for early repayment. Some fixed rates have that option. They’re higher rates than normal, but give you the flexibility.
An alternative might be a tracker rate, which are often pegged to the Bank of England base rate. They tend not to have any penalty for early repayment. You could just be on a tracker for six months and when you move, you redeem that loan and start afresh with the new lender.
It’s very important to consider the options and that’s where a mortgage broker comes in. We will explain the different approaches and make a personal recommendation.
PLEASE NOTE: YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP WITH YOUR MORTGAGE REPAYMENTS.
