How Does a Mortgage Work When Moving House?

When you're moving house, the mortgage process can feel like a labyrinth of financial jargon and complex procedures. But understanding how it works can make the transition smoother and less stressful. Here's a detailed guide on what you need to know about handling your mortgage when moving to a new home.

1. Assessing Your Current Mortgage

Understanding Your Existing Mortgage

Before you can move house, it’s crucial to understand the specifics of your current mortgage. This includes the remaining balance, interest rate, and any penalties for early repayment. Typically, mortgages have early repayment charges (ERCs) if you decide to pay off your mortgage before the end of your fixed-rate period.

Key Considerations:

• Remaining Balance: The amount you still owe on your current mortgage.
• Early Repayment Charges: Fees for paying off your mortgage early.
• Interest Rate: Fixed or variable rate details that may impact your decision.

Example: Let’s say you have a £150,000 mortgage with a fixed interest rate of 3% for another 5 years. If you decide to move, you may face an early repayment charge of 2% on the remaining balance, which would be £3,000.

2. Deciding Whether to Port Your Mortgage

What Is Mortgage Portability?

Porting a mortgage means transferring your existing mortgage to your new property. Not all mortgages are portable, and some may come with restrictions or require additional fees. If your mortgage is portable, you’ll need to go through a new application process to adjust the loan amount for your new home.

Advantages of Porting:

• No Need for New Application: You might avoid the hassle of a new mortgage application.
• Potentially Keep Your Current Rate: If your current rate is lower than what’s available in the market.

Disadvantages of Porting:

• Possible Additional Costs: Fees for adjusting the mortgage and potential higher rates for the new home.
• Eligibility Criteria: Not all mortgages allow for porting.

Example: Suppose your current mortgage lender allows porting, and you’re moving to a home costing £200,000. If you need to borrow an additional £50,000, your lender may require a reassessment of your financial situation and the new property.

3. Re-mortgaging When Moving House

What Is Re-mortgaging?

Re-mortgaging involves taking out a new mortgage on your new home, often with a different lender. This process allows you to pay off your existing mortgage and take out a new one, potentially at a better rate or for a different term.

Advantages of Re-mortgaging:

• Better Rates: You might secure a more competitive interest rate.
• Flexible Terms: Adjust the loan term to suit your financial situation.

Disadvantages of Re-mortgaging:

• Fees and Charges: Includes valuation fees, legal costs, and possible early repayment charges.
• Time-Consuming: The process can be lengthy and involves a new application and approval process.

Example: If you choose to re-mortgage, you might find a lender offering a 2% interest rate compared to your current 3%. However, consider the associated costs, such as a £500 valuation fee and £1,000 legal fees.

4. Bridging Loans: A Temporary Solution

What Is a Bridging Loan?

A bridging loan is a short-term loan used to "bridge" the gap between buying a new home and selling your old one. This can be particularly useful if you need to complete the purchase of your new property before your existing home is sold.

Advantages of Bridging Loans:

• Speed: Can provide quick access to funds.
• Flexibility: Useful if there's a delay in selling your current home.

Disadvantages of Bridging Loans:

• High Interest Rates: Typically higher than traditional mortgages.
• Short-Term Solution: Not intended for long-term financing.

Example: You find a new home but haven’t sold your current property yet. A bridging loan can provide the necessary funds to complete the purchase. However, this loan might come with a higher interest rate and additional fees.

5. Budgeting for Additional Costs

Hidden Costs of Moving

Beyond the mortgage, moving house involves various additional costs that should be factored into your budget. These include legal fees, stamp duty, and moving costs.

Budget Breakdown:

• Legal Fees: Usually range between £500 and £1,500.
• Stamp Duty: Calculated based on the value of the new property.
• Moving Costs: Can vary depending on the distance and volume of belongings.

Example: If you're buying a home for £250,000, you may face a stamp duty charge of £2,500, legal fees of £1,000, and moving costs of £800. Ensure your budget accounts for these expenses.

6. Consulting with Professionals

Why You Should Seek Professional Advice

Navigating mortgages and moving can be complex, so consulting with a mortgage advisor or financial planner can provide valuable insights. They can help you understand your options, assess potential costs, and make informed decisions.

Benefits of Professional Advice:

• Expert Guidance: Provides clarity on mortgage options and financial implications.
• Personalized Solutions: Tailored advice based on your financial situation.

Example: A mortgage advisor can help you determine whether porting your mortgage or re-mortgaging is the best option, considering your current financial status and market conditions.

7. Preparing for the Mortgage Application

What to Expect During the Application Process

Once you've decided on your mortgage strategy, you’ll need to prepare for the application process. This involves providing detailed information about your finances, the property you're buying, and any additional documentation required by the lender.

Key Documents:

• Proof of Income: Recent payslips or tax returns.
• Credit History: Lenders will assess your credit score and history.
• Property Details: Information about the new property, including its value and condition.

Example: When applying for a new mortgage, you may need to provide your recent pay slips, bank statements, and a copy of the purchase agreement for the new home.

8. Closing the Sale

Final Steps Before Moving In

After your mortgage is approved and the purchase is complete, you’ll need to finalize the transaction and complete the sale. This includes signing the mortgage agreement, transferring funds, and receiving the keys to your new home.

Final Checklist:

• Sign Mortgage Agreement: Officially agree to the terms of your new mortgage.
• Transfer Funds: Ensure all necessary payments are made.
• Receive Keys: Complete the final step of moving into your new home.

Example: Once the sale is complete, you’ll sign the necessary documents and make the final payments. You’ll then receive the keys to your new property and can begin the process of moving in.

In Conclusion

Understanding how a mortgage works when moving house is crucial for a smooth transition. Whether you choose to port your mortgage, re-mortgage, or opt for a bridging loan, careful planning and professional advice can help you navigate the complexities of the mortgage process. By assessing your current mortgage, budgeting for additional costs, and preparing for the application process, you can make informed decisions and move into your new home with confidence.