Selling a House With a Mortgage Complete Guide
Estimated reading time 9 minutes
If you are selling a house that still has an outstanding mortgage, then you belong to the 37.5% of the UK population who are homeowners with an ongoing mortgage or loan. This comprehensive guide detailing what happens when you sell a house with a mortgage will be of assistance to you.
A mortgage is a type of loan that you get from a bank or building society to help you buy or maintain a property. The bank or building society lends you money, and in return, you agree to pay it back in monthly payments over a certain period of time. These payments are made up of two parts: the amount you borrowed (known as the principal) and the interest, which is the cost of borrowing the money. The property you’re buying is used as security for the loan, meaning that if you don’t keep up with your repayments, the bank or building society may be able to take possession of the property.
Options when selling a house with a mortgage
When you are moving to a new home, you may have the option to transfer your current mortgage to your new property, which is called “porting”. Alternatively, if you need a mortgage to finance your next purchase, you may have to apply for a new mortgage deal.
Porting is a feature offered by some mortgage lenders that allows you to transfer your existing mortgage and take it with you when you move home. This means that the you do not have to pay off your existing mortgage and take out a new one when you move, which can save you money in terms of fees and charges.
Porting can also allow you to keep your current interest rate and terms, which can be beneficial if you have a good interest rate on your current mortgage. Additionally, porting can provide you with more flexibility when moving home, as you do not have to worry about breaking your mortgage contract early or finding a new mortgage deal.
Gaffsy says … It is important to note that not all mortgages are portable, and there may be limitations and restrictions on porting. Being able to port your mortgage is usually subject to status and lending criteria so always check with your mortgage lender to see what options are available to you.
When is porting not the solution?
- When you are moving to a more expensive property, you may need to borrow a higher amount. However, if you’re already close to the maximum amount you can borrow, your lender may not allow you to port your mortgage.
- If your lender agrees to let you borrow more, they may insist on setting up a new mortgage product. This could result in a redemption penalty on your existing mortgage and a new arrangement fee for the new mortgage. Similarly, if you port less you may also have to pay an early repayment fee So, porting may be expensive and therefore not the best option for you.
- Porting your mortgage means that you will need to reapply for the deal. Your lender may not allow you to port if they determine that you no longer meet their lending criteria. Your personal circumstances may have changed since you first applied for the mortgage, such as becoming self-employed or incurring more debt. Or, the lender’s lending criteria may have changed since you first applied.
- Porting your mortgage ties, you to one lender, so you might want to consider it carefully. The interest rates you receive might not be competitive compared to other mortgage deals available in the market and you might find a better deal elsewhere.
- You may not be able to port your mortgage if you don’t meet your lender’s criteria. For instance, your lender might consider your new property too risky or unsuitable. Another reason they may not allow you to port your mortgage is if you have made some mortgage repayments late and therefore no longer meet their lending criteria.
Steps to take when selling a house with a mortgage?
Firstly, speak to a mortgage adviser, they can help you assess your options and choose the best course of action for your specific circumstances. They can also help you check if you can get a better deal elsewhere, rather than porting your existing mortgage. By doing this, you’ll have access to the whole mortgage marketplace and might find a more competitive interest rate and/or better terms which could save you money in the long run.
Secondly, if porting is not an option start shopping around for a new mortgage deal in advance. You can also start getting your financial documents in order, such as bank statements, payslips, and tax returns, to ensure a smooth and efficient mortgage application process. This means that you can provide the address and details of the new property you are looking to buy and get a mortgage offer prepared ahead of time.
Additionally, work on improving your credit score by paying bills on time and reducing your debts, as this can increase your chances of being approved for a new mortgage and getting a better interest rate.
What happens if my mortgage term has longer to run?
If you sell your house and your mortgage term still has time left, you’ll need to pay off your remaining mortgage balance. This can be done by using the proceeds of the house sale to pay off the balance of the mortgage. However, if you still owe more than the sale price of your house, you’ll need to come up with the additional funds to pay off the mortgage. Alternatively, you can transfer your mortgage to your new property, if your lender allows it.
Gaffsy says … It is important to remember that early repayment fees may apply if you pay off your mortgage before the end of the term, so it’s best to check with your lender before thinking about selling a house with a mortgage. If you are not familiar with your terms ask your lender for them.
What if I am in negative equity?
Selling your home when you’re in negative equity is best avoided, as you’ll have to make up the difference between the sale price and the outstanding loan amount. If you can’t avoid selling, speak to your mortgage lender to see if they can offer a payment plan to repay the debt over time. Keep in mind that selling at a loss means you won’t make any profit, and you may not be able to afford to buy another property right away.
A small number of lenders specialise in ‘negative equity mortgages,’ which let you transfer the negative equity to a new property, but the interest rates are usually very high and you may face early repayment charges on your old mortgage.
Another option is to let out your property and rent elsewhere, but you’ll need to cover repayments when the property is vacant and pay rent for your new place, which may not be financially viable.
What happens if you fail to repay your mortgage?
If you fail to repay the mortgage lender has the right to repossess your home and sell it to recover the money owed. If the amount they get for selling it is less than the amount you borrowed you usually still have to pay back the remainder so make sure you only borrow what you can afford. If you are in financial difficulty speak to your lender as soon as possible. Check out our guide What can I Do if I Fall into Mortgage Arrears for more details on this subject.
What happens when you sell your house with a mortgage?
The financial process of what happens when you sell your house with a mortgage is as follows:
- Repayment of the mortgage: Before you can transfer the ownership of the property to the buyer, you’ll need to repay the outstanding mortgage balance in full. This is typically done by your solicitor or licensed conveyancer using the proceeds from the sale of the property.
- Mortgage redemption statement: Once you’ve agreed to sell your property, your solicitor or licensed conveyancer will request a mortgage redemption statement from your lender. This statement will outline the amount you need to pay to fully redeem your mortgage, including any early repayment charges or exit fees.
- Closing your mortgage account: Once you’ve paid off your mortgage, your lender will close your mortgage account and provide you with a final statement. This statement will confirm that you’ve paid off your mortgage in full and that you’re no longer liable for any future payments.
- Discharging the mortgage: After you’ve closed your mortgage account, your lender will need to discharge the mortgage from the title of your property. This is done by filing a form with the Land Registry, which removes the mortgage charge from the title of your property.
- Transfer of ownership: Once your mortgage has been fully repaid and discharged, you can transfer the ownership of the property to the buyer. This is typically done using a solicitor or conveyancer, who will handle the legal aspects of the transfer and ensure that all necessary paperwork is completed correctly.
Benefits of selling your house with a mortgage to Gaffsy
If you choose to sell your house with a mortgage to Gaffsy, you will benefit from our zero fees policy as well as our ability to buy your house in a timeframe that suits you.
As a member of the Property Ombudsman and NAPB, Gaffsy can provide you with an extra layer of reassurance and professionalism.
We prioritise simplicity, transparency, and trustworthiness in all our transactions making selling your house with a mortgage to Gaffsy a convenient and hassle-free option to consider.