Portable Mortgages

by Mark Johnston

Over the past decade, thanks to strong competition, portability of mortgages has become common. Therefore the vast majority of home owners preparing to move will be able to transfer their existing mortgages with out paying an early redemption charge (ERC), even if they are tied in to a deal.

According to Moneyfacts, a financial analyst, only 16 lenders from the 101 on its database do not offer full portability across their entire mortgage range.

A portable mortgage means existing borrowers can move all or part of their mortgage to a new property with out having to pay the early redemption fee that may be incurred. They may also be able to borrow more subject to their lenders criteria and the terms and conditions of their current mortgage.

On paper, taking your mortgage to new property looks easy, all modern mortgages claim to be portable, but the dreaded ‘terms and conditions’ which have been enforced since the start of the credit crunch, can cause problems.

Firstly, portability only applies to the existing loan, however most home movers are climbing the property ladder and will therefore require a bigger mortgage.

Further borrowing can come with a different tie in period to the existing debt which can therefore mean that the 2 loans are out of sync, effectively locking customers in for a longer deal.

Rob Clifford, managing director of broker Mortgageforce, warns that “most lenders are under no obligation to offer the same rate borrowers have on their current mortgage to any additional borrowing”.

Also home owners must also be aware when thinking about a portable mortgage is that they do not actually take the mortgage with them as the loan is secured on the property they are buying with it, therefore the previous mortgage is paid off and a new mortgage is set up.

When a mortgage is moved to a new property it is effectively underwritten again, just as if they were applying for the first time. This means that the borrower’s current financial status equity and income will once again come under the microscope by the lender. This can be a problem if the borrower has changed jobs, seen their income fall or taken on extra debts since they took out their original mortgage.

It is also worth noting that if the borrower’s current lender does not like the look of the new property, if they consider it to be inadequate security for a further advance or even the original loan, they may refuse the application.

Also generally speaking, home owners can only transfer their mortgage if they are moving straight in to their new property, meaning if they leave their old property on Tuesday they would need to move in to the new property on Tuesday.

Other problems which can affect portable mortgages are:

–          low equity- if home owners are selling their property for less than they had hoped for then the loan may end up being worth more than 90% of the new property’s value and the lender may therefore refuse to ‘port’ the current deal/

–          Negative equity-basically if the old property is worth less than the mortgage any home owner will struggle to move as most lenders will expect repayment of any extra debt and move in to a cheaper home.

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