A Guide to Portable Mortgages

The decision to move to a new property can be both exciting and daunting. While the prospect of a fresh start is thrilling, the idea of once again going through the whole process of obtaining a new mortgage can be unappealing. Portable mortgages offer an alternative. They can potentially enable a smoother transition by allowing you to transfer your existing loan to your new home, while avoiding an early repayment charge and preserving a favourable interest rate.

What is a Portable Mortgage?

A portable mortgage is a home loan that can be transferred from your existing property that you are selling to the new property you are buying. Porting lets you retain your current mortgage terms, including the interest rate, without incurring an early repayment charge. Formally, it involves re-applying for the same mortgage and securing it against your new property, subject to your lender's approval based on their updated affordability assessment and property valuation.

The Beauty of Portability

Portability can make the moving process smoother. One of the primary benefits is the potential to maintain a lower interest rate if rates have increased since you last fixed your rate on your existing mortgage. By avoiding the need to remortgage, you can also potentially avoid hefty early repayment charges (ERCs) that accompany paying off a mortgage before its fixed interest rate period ends if you are on a fixed rate. For example, if you are within the first year of a 5-year fixed rate period, the ERC could be as high as 4.5% of the loan amount.

Eligibility and Limitations

While portable mortgages offer undeniable advantages, it is essential to understand that not all mortgages are portable. Therefore, confirming this feature with your mortgage provider is crucial before proceeding.  

Even if your mortgage is portable, you will need to satisfy your lender's updated affordability assessment, including consideration of your current income and debts, and credit history. The lender will also want to have the new property you are buying valued by an independent professional surveyor.

Moreover, some lenders may restrict the types of property that are eligible for portability or limit the number of times a mortgage can be ported during its term. To ensure a smooth transition, it is essential to familiarize yourself with your lender's specific policies and perhaps also seek additional guidance from a mortgage advisor.

Costs and Considerations

While portable mortgages can save you from incurring certain potentially significant costs associated with obtaining a new mortgage, such as an early repayment charge, it is important to recognize that porting your mortgage is not entirely cost free. Standard fees you may encounter include:

1. Arrangement Fees: Lenders often charge an arrangement fee for setting up your existing mortgage as a new mortgage on your new property.

2. Valuation Fees: Your lender will require an independent valuation of your new property by a professional surveyor to assess its worth and ensure that it meets their lending criteria.

3. Legal Fees: Depending on your lender's policies, you may need to cover legal fees for transferring the mortgage to your new property.

Additionally, if the new property is more expensive and you need to borrow more money, your lender’s affordability assessment will take this into account. You may have to pay an additional lending fee and the additional loan may not be on the same rate as the existing one. In any event, your mortgage payments will increase if the size of your mortgage loan increases.

Exploring Alternatives like Remortgaging

Sometimes, there may be more suitable options than porting your existing mortgage.  

For example, if interest rates have decreased significantly, you want to borrow more and you and your new property would qualify for this, or you want to extend the term of your mortgage and you would qualify for this, you might be better off remortgaging instead of porting. It may be advantageous to do this even if an early repayment charge applies to your existing mortgage. Of course, an ERC may not apply at all because you are on a fixed rate, in which case the advantages of remortgaging in this situation may be even greater.  

Seeking Professional Guidance

While portable mortgages may offer a convenient solution for some homeowners, others may benefit from seeking professional guidance to ensure that they make informed decisions tailored to their unique circumstances. Consulting a professional mortgage broker or an independent financial advisor can provide invaluable insights and personalized recommendations. Suitably qualified experts can help you navigate mortgage portability, evaluate alternative options and help ensure that you make the most financially sound decision for your move.

Conclusion

Portable mortgages offer flexibility and simplicity for homeowners seeking a seamless transition. By transferring your existing loan to your new property, you can enjoy the benefits of retaining favourable terms, while minimizing disruptions and unnecessary costs.  

As you embark on your journey towards a new home, however, assess the costs and benefits carefully, and explore alternative options, possibly with the help of a mortgage broker or independent financial advisor. Portability may not always be the best fit.  

FAQs:

Q. What is a portable mortgage?

A: A portable mortgage is a home loan that can be transferred from your existing property that you are selling to the new property you are buying. Porting lets you retain your current mortgage terms, including the interest rate, without incurring an early repayment charge. Formally, it involves re-applying for the same mortgage and securing it against your new property, subject to your lender's approval based on their updated affordability assessment and property valuation.

Q. Is porting a mortgage always possible?

A: Not all mortgage products are portable, so check with your lender. Even if your mortgage is portable, you will need to satisfy your lender's updated affordability assessment, including consideration of your current income and debts, and credit history. The lender will also want to have the new property you are buying valued by an independent professional surveyor. To ensure a smooth transition, it is essential to familiarize yourself with your lender's specific policies and perhaps also seek additional guidance from a mortgage advisor.

Q. What are the advantages of porting a mortgage?

A: One of the primary benefits is the potential to maintain a lower interest rate if rates have increased since you last fixed your rate on your existing mortgage. By avoiding the need to remortgage, you can also potentially avoid hefty early repayment charges (ERCs) that accompany paying off a mortgage before its fixed interest rate period ends if you are on a fixed rate.  

Q. Are there disadvantages to consider when porting a mortgage?

A: If interest rates have decreased significantly, you want to borrow more and you and your new property would qualify for this, or you want to extend the term of your mortgage and you would qualify for this, you might be better off remortgaging instead of porting. It may be advantageous to do this even if an early repayment charge applies to your existing mortgage. Of course, an ERC may not apply at all because you are on a fixed rate, in which case the advantages of remortgaging in this situation may be even greater.

Q. How much does it cost to port a mortgage?

A: The costs of porting a mortgage can include an arrangement fee, a valuation fee and possibly other administrative fees. The exact costs can vary depending on your lender and the specifics of your mortgage agreement. It is important to consult with your lender to understand all the potential fees involved.