Selling a house with a mortgage

If you’re selling a house with a mortgage, should you move your current mortgage or take out a new deal? We look at the pros and cons.

Rebecca Gamble Consumer Journalist

Selling a house with a mortgage in place is very common. In fact there are 6.5 million homes owned with a mortgage or a loan in England alone according to the most recent ONS data. Here we look at the process of how to sell your house and move home when you already have a mortgage.

Can you sell a house with a mortgage?

Yes you can. You have two options when you sell a house with a mortgage:

1. Porting your mortgage. This means moving your existing mortgage to your new property.
2. Paying off your mortgage with the money you receive from your sale. And taking out a new mortgage on your new property

Although there are criteria you’ll need to meet and steps to follow to make it happen.

What happens when you sell a house with a mortgage?

This depends on which route you choose – porting a mortgage or switching to a new mortgage:

1. Porting a mortgage

Taking your mortgage to another property when you move is known as porting your mortgage. You’ll keep your current mortgage rate and won’t need to pay an early repayment charge if you’re moving before your initial mortgage term ends. However, when you port your mortgage you will have to apply for the mortgage again because you’re asking your lender to re-lend you the money to buy a new home. The loan itself is not what transfers; it’s just the rate, terms and conditions.

So your lender will will re-assess your income, your expenditure and your personal circumstances to see if you meet their current criteria for lending. Some aspects may have changed since you last applied for the mortgage with them so they’ll want to check affordability criteria. They will also run a credit check.

Your lender will also carry out a mortgage valuation of the property you want to buy to ensure it’s adequate security for the loan.

You may also decide you want to use his opportunity to borrow more, perhaps to pay for home improvements in your new home. It’s likely that the additional amount you borrow will be at a different rate to your existing mortgage. You can get an instant idea of how much you can borrow with our mortgage calculator.

And for more information, read our guides on Porting your mortgage and Buying and selling a house, the full process.

2. Switching to a new mortgage

Alternatively, you may wish to take out a new mortgage when you buy your new house. When you do this, you’ll pay off the outstanding mortgage balance with money you receive from the sale of your property. Then you’ll use money left over as your mortgage deposit.

But it’s vital to find out if you’re liable for any mortgage fees like an early repayment charge if you’re planning on selling a house during a fixed term mortgage. This could be as much as 5% of the outstanding loan amount.

In many cases, if you’re on your lender’s Standard Variable Rate you won’t be able to port your mortgage, you’ll need to take out a new deal. But if you are on the Standard Variable Rate, even if you can port, by switching to a new deal you may find you can get a much cheaper rate – the easiest way to find out is by speaking to a mortgage broker.

Porting a mortgage or paying it off: Which is best?

Whether it is better to port your mortgage or pay it off and switch to a new deal depends on your circumstances. If you’re currently on a cheap fixed deal that you can port – and will face hefty early repayment charges by switching to a new deal, then porting is likely to be the cheapest option. But don’t assume this is the case without doing your research. By speaking to a mortgage broker, they’ll quickly establish which is the best route for you.

But bear in mind that even if your mortgage is portable, your lender may refuse. For example if:

• You no longer satisfy their lending criteria
• You’re considered a higher risk, for example if you’ve made late payments
• The property doesn’t meet its lending criteria.

How much does selling a house with a mortgage cost?

The cost of selling can vary from £0 to £1,000s. If you’re taking out a new mortgage deal, you may need to pay an arrangement fee, as well as an exit fee and early repayment charge to leave your current deal.

If you’re porting your mortgage, the mortgage fees you pay depend on whether you’re:

• Keeping the same level of borrowing – There will usually be no fee, although you may need to pay a fee for the mortgage valuation.
• Increasing your borrowing: You may need to pay an arrangement fee on the additional borrowing.
• Reducing your borrowing: You may need to pay an early repayment charge on the difference between the loan amounts – so on the amount you are repaying early. Not all mortgage lenders will do this so always check.

Get more details on how this all works in our guide on mortgage fees and costs.

How does selling a house during a fixed term mortgage work?

Unless you port your mortgage, you could be liable for fees like an early repayment charge if you sell and you have a fixed term mortgage. So make sure you investigate.

How is your mortgage paid off when you sell your house?

When your house is sold, the money raised from the sale will pay off the original mortgage. If you’re buying a new house with a mortgage, you can use any leftover cash for your mortgage deposit. But your conveyancing solicitor will handle this for you.

Can you sell a house within 6 months of buying it?

If you’re selling a house with a mortgage in the UK, most lenders will require you to have been living in it for at least 6 months before you can sell.

What happens if you’re selling a house with a mortgage and you’re in negative equity?

Negative equity occurs when the market value of a house is less than the outstanding mortgage secured on it and this can be a major problem if you want to sell the property. For more information, read our guide on Negative equity: What it is and how to get out of it