Once you’re on the property ladder having purchased your first home, you may think that you’ll never put yourself through the house buying experience again! But with the average Brit moving house eight times during their lifetime (although not always because of a property purchase), it’s fairly inevitably that you will at some point need to sell and buy a new home.
Whether this is to buy a larger house for a growing family, to facilitate a move to another area of the country, or to buy that house of your dreams, you may find yourself needing to pull off a house sale and house purchase with all the various factors that involves.
What Happens To My Mortgage?
The most common question I get asked when someone decides that they’re ready to make this move, is ‘what happens to my mortgage?’ The good news is that this element of the house selling / buying challenge can be relatively easy to organise, however there are a few things you need to consider:
Most mortgages are portable which means you can transfer them to your new property. But unless you’re buying and selling a house of the same value it’s likely that you will need to borrow more on your new home. Your lender will want to value the property and then effectively make you a new mortgage offer if you need to borrow more. You could find that your circumstances, or your lender’s criteria has changed and therefore you’re no longer eligible for that mortgage product, so make sure you speak to your lender or mortgage broker early in the house buying process.
If it is possible to port your mortgage, budget for any transfer fees – typically these will only be a few hundred pounds.
Find A Better Mortgage Deal
While transferring your mortgage may be the most straightforward solution, it might not be the most financially advantageous. Buying a new house is a great opportunity to shop around for a better deal and see whether you can find a more competitive mortgage. There are a few provisos though:
Remortgaging penalties: If you’re still in a special offer period of your mortgage, perhaps in a fixed term or discounted rate, there may be penalties to pay for changing mortgages. You’ll need to ensure that any savings you make with a different deal outweigh these fees and interest charges.
Lender’s criteria: Since you took out your existing mortgage your lender’s criteria could now be a lot more stringent. Any new mortgage offer will be based on their current lending criteria, not what they used when you took out your current mortgage. This means that even if your personal circumstances have not changed, you may find it harder to qualify.
Early repayment charges: If you can’t get the mortgage offer you want from your current lender, but have found a competitive offer with another lender, you’ll probably need to pay early repayment charges on your existing mortgage. This can also be true if you transfer your mortgage to different product with the same lender. Check your mortgage offer to see whether you are in an early repayment charge period.
Tips For Improving Your Chances Of Getting The Right Mortgage
As you can see, whether you are planning to port your mortgage or get a new deal, you’ll need to apply for the mortgage in the current economic climate. With lenders being more risk adverse this means that it’s generally harder than 10 years ago before the economic downturn.
So before you approach any mortgage lender it’s advisable to get your finances in order.
- Your credit score: Lenders will look at your credit score to see what your repayment history is like. Get in there first so there are no unpleasant surprises. Many credit rating providers have a free trial period that means you can sign up and check your score, then cancel your account without paying anything. If you think your credit score is wrong and there is an error on it, you’ll need to contact the lender in question (whether this relates to a loan, overdraft, credit card etc.) and ask them to wipe the error from their file.
- Manage your credit carefully: Lenders also look to see how much credit you are using on credit cards and overdrafts. If you’re edging close to your limit this may make them nervous, and they may also regard large amounts of unused credit suspiciously too – thinking you could suddenly max out on this and become more heavily indebted. Experian advise that you balance available credit with debt at around the 50/50 mark, although lenders’ views on how much credit you should have do differ.
- Pay your bills on time: Missing bill payments can seriously impact on your credit score, will count against you for a year but remain on your file for six years.
- Proof that you can afford the mortgage: Lenders will also want to see copies of your bank statements to see what you ins and outgoings are like, and whether you can afford the mortgage. Three to six months before applying for a new mortgage start managing your household income a little more efficiently, switch your weekly shop from Waitrose to Lidl, and make sure it’s clear that your lifestyle matches your income.
Finally, if you’re shopping around for a new mortgage for a new property you may want to test your chances with a mortgage agreement in principle (AIP). This may help highlight any issues you have in getting a mortgage, allowing you to address these problems or revise your expectations. However, an AIP will involve a credit check and therefore if you request too many AIPs, or get rejected by a mortgage lender and then apply again, you can mess up your credit score.
A chat to a friendly and independent mortgage broker about your individual circumstances will help you avoid these pitfalls and also secure the best mortgage deal for you.