Moving Home

If you are selling your current home and looking to move to a new residential home, then it’s imperative that you get your mortgage arranged ASAP to avoid any potential chain breaks.

Moving home typically involves the following mortgage scenarios:

Selling current home and buying new home for cash, i.e., from existing equity and savings: No mortgage required.

Selling current home and you port your existing mortgage to new home. The majority of lenders will allow you to port your existing mortgage to your new home. Therefore, you don’t have to take out a new mortgage. You may wish to stay with your existing lender because you are tied in on a current product and will incur an early redemption fee, or you are currently on an excellent product which you don’t want to give up for all the gold in the world. Lastly, it may be quicker to just stay with your existing lender to ensure a smooth move.Home Movers

As such, you simply continue with your existing mortgage, with the only difference being that your existing mortgage is now transferred and secured on your new residential home. You will still need to complete an application form, and the lender will check your affordability and that the new property you are buying is suitable. However, the overall process should be a tad quicker.

Port example 1: Your current home is on the market for £500,000 and you have an existing mortgage of £100,000 with Lender ABC.

As such, you have £400,000 equity and savings of £130,000.

The purchase price of the new property is £600,000.

The sale of your old home and purchase of your new home must be done simultaneously. As such, the new property will have a mortgage of £100,000 on a property value of £600,000. (Your deposit of £500,000, comprised of £400,000 from sale of your former home plus £100,000 personal savings).

Port Example 2: Your current home is on the market for £500,000 and you have an existing mortgage of £100,000 with Lender ABC.

As such, you have £400,000 equity but you only have savings of £40,000 to cover legals and stamp duty fees. The purchase price of the new property is £600,000. Therefore, you will need to find £100,000 to make up the difference.

You port your existing mortgage with Lender ABC and you borrow the additional £100,000 from Lender ABC. You cannot borrow the additional £100,000 from another lender. It can only be with Lender ABC. In effect, you will have two mortgages with Lender ABC, i.e., your original existing mortgage of £100,000 at one rate and the new mortgage of £100,000 at another rate. However, you’ll be making one monthly payment comprised of the two mortgages.

Check to see if porting your existing deal plus top up, compared to taking out a new loan with another lender for the whole amount, is a better option. Last year, new rules came into play and lenders have tightened their criteria; therefore, existing clients looking to port may be subject to new lending criteria, which might make porting no longer possible. If you are faced with such a challenge, then outsource the task to an independent mortgage broker.

Section 10 of your Key facts illustration and mortgage offer will confirm whether your current mortgage is portable. If you can’t find the paperwork, contact your lender directly and they will tell you if it’s portable.

Selling your current home and you need a mortgage for your new residential home. In today’s market, patient sellers do not exist. The bottom line is that they all want a quick sale. The typical spiel is the seller just had a buyer that wasted their time and now wants to make sure that the next potential buyer that makes an offer can move like Usain Bolt in securing their mortgage offer.

Estate agents want to know that you have a decision in principle or that you have arranged your mortgage in advance. If it’s a quality property, then you have the additional pressure of competing with other buyers who want to get their hands on the keys to your home. In today’s frantic property market, it boils down to one thing: speed.

As a result of MMR, lender’s processing times are being stretched to the limit. In some cases, you may have to wait a few weeks before you can get an appointment to see a mortgage adviser at one of the high street banks, plus another four weeks to get a mortgage offer. If you are going direct, make sure you are aware of the lender’s offer generation timescales: How long will it take from submitting an application to receiving a mortgage offer? Do the timescales work with your vendor’s timeline?

Is it going to be quicker and easier for you to arrange your mortgage by applying direct to a lender or do you use an independent mortgage broker? Making the right decision will cause less stress and reduces the probability of a chain break, therefore resulting in a smoother house move.

Your home is currently on the market but not yet sold and you have seen a property that you desperately want to buy. Again the seller is demanding a quick sale, is not prepared to sell the property to you because you have not found a buyer for your property, and is reluctant to get involved in a house chain.

If you have sufficient income, savings, and equity in your home, then it’s possible to still buy your new home even though you’ve not sold your current property.

Option 1: Your income can cover both mortgages. Depending on your income, you can apply for a new mortgage on the new property and, so long as you have enough money to cover the deposit: job done. When you sell your property, the proceeds will be used to reduce the mortgage on your new residence.

Option 2: Take out a bridging loan. Depending on the equity in your current property, personal income, existing savings, and the value of the new residential home, you could take out a bridging loan. A bridging lender will advance you the cash to buy the new property even though your current property has not yet sold. The bridging loan is paid back from the sale of your old home and, if it does not fully pay off the bridge, then you can possibly remortgage your new residence.

Because it’s all about speed and securing the new property quickly, you want to work with a mortgage broker that has experience with doing these types of deals and, most importantly, has access to a wide choice of lenders and bridgers that adopt a lateral thinking approach coupled with speed of service.

You decide to rent your current home and buy a new residential home. This is referred to as a Let to Buy strategy. Please note: There is no such thing as a let to buy mortgage. It’s the process of letting your property and buying a new property that is referred to as a let to buy. As such, you will need a BTL mortgage on your existing residence and will need to apply for a standard residential mortgage for your new residential home. Sometimes you can just apply for a new residential mortgage for your new home and your existing lender will give you consent to let.

This is best explained by the following Let to Buy examples:

You have an existing mortgage with Lender ABC.

The outstanding mortgage is £100,000 and the property value is £200,000.

Your current mortgage rate is 3.5%.

Mortgage is £500 pm and typical average rent for your property is £1000 pm.

You want to move and buy a larger residential home. However, because your current home is in a good location where rental demand is strong, you have decided not to sell. You inform Lender ABC of your intention to rent your current home and they give you consent to let. Lender ABC charges a small admin fee of £200 for consent to let and they may increase the rate to reflect that it’s now a buy to let mortgage (i.e., from its current rate of 3.5% to 4.5%; as such, monthly may increase to £600).

You apply for a new residential mortgage for your new home from another bank: Lender XYZ. Lender XYZ will be informed of your existing mortgage with Lender ABC and will proceed to offer you a new residential mortgage once satisfied that your existing property is self financing i.e., rent will adequately cover your existing mortgage.

Unfortunately, not all lenders are Let to Buy friendly; therefore, when you commence your search for a mortgage for your new residential home, you need to approach the right lenders from the outset, i.e., lenders that will accept your plans to rent out your property. Once again, it’s about the lender’s criteria and making sure they are compatible with your let to buy objectives. This is the classic scenario whereby looking at a mortgage best buy table for the best 5 year fixed rate is completely meaningless and a waste of time as it’s the lender’s criteria that takes precedence and needs to be analysed first and foremost.

In addition, your existing lender may not give you consent to let which means you will have to remortgage your current property from a residential mortgage to a Buy to Let mortgage.

The structure of these types of mortgage transactions, although to some they may appear complex, is actually bread and butter for an experienced mortgage broker. You can go direct but they won’t be able to advise you on a bridging loan and they may not have the products to make it work cost effectively.

The let to buy strategy is an imaginative solution to ensure a smooth move, but it’s increasingly being used to build a property portfolio. Some savvy homeowners have decided not to sell as they believe property prices will continue to rise, making home ownership impossible with the inevitable outcome of a buoyant and thriving rental market.

This leads to the final scenario: You want to move and the majority of your equity is tied up in your existing home. In addition, you don’t want to sell your tiny flat as you know it’s in a fantastic rental location. The following scenario is increasingly being used by a number of home movers.

You decide to rent your current property but also capital raise on your existing home to assist with the deposit of your new residential home.

You have an existing mortgage with Lender Blue.

The outstanding mortgage is £100,000 and the property value is £250,000 (40% LTV).

Your current mortgage rate is 3.5%.

Average rent for your type of property in the area is £1000 pm.

In this scenario, you apply for a BTL mortgage for your current home.

You approach Lender Red, who has agreed to lend you £175,000 on a property value of £250,000 (70% LTV).

You inform Lender Red that the extra £75,000 being raised is to cover the deposit for a new residential mortgage. So long as rent adequately covers the mortgage of £175,000, Lender Red will give you a mortgage. In addition, Lender Red has competitive residential products and agrees to give you a mortgage for your new residential home. As such, Lender Red agrees to lend you £245,000 on a purchase price of £330,000 (74% LTV). So you need a deposit of £85,000 and you’ve got £10,000 of existing savings to utilise for your deposit, plus the £75,000 you have just raised from your existing home.

Some home-owners are choosing to keep their existing residence as an investment pension vehicle to be cashed in at a later date. For example:

They buy their first property at the age of 33 and then decide to move at the age of 40, then move again at the age of 47 and then make a final move to their dream home at 53. They never sell but remortgage to raise the deposit for the new home. They will have three BTL properties generating rental income and hopefully capital appreciation. A year before they decide to retire at the age of 66, they may decide to sell the first property purchased 32 years ago and use the proceeds to pay off the mortgage on their dream home. Do you think property prices may have increased over 32 years? If your answer is no, then you are probably right. If your answer is yes, you are probably right. Yes, they’ll have to think about capital gains tax but at least they’ve got a too much money issue to worry about as opposed to not having enough to live on post retirement.

Landlord by default. This is where you have decided to sell your current property, and it’s been on the market but you have not found a buyer. Meanwhile, you have seen a property you really love and the vendor is not prepared to give you any additional time to sell yours. Because you don’t want to lose this new property you have found, you decide to convert your existing property into a BTL and capital raise additional funds needed to buy the new residential home. So you become a landlord by default. As such, the vendor is willing to proceed with your offer because you have managed to extricate yourself from a house chain to ensure a quick sale.

A landlord by default will typically go for a two year deal on the BTL because, if they hate the landlord experience, they have the option to put their property back on the market at the end of the two years and avoid any early redemption charges. However, if during the two year period it proves be a clever strategy, they can then remortgage onto a long term product at the end of the two years.

The structure of these types of mortgage transactions, although to some they may appear complex, is actually straightforward for an experienced mortgage broker. Everyone’s financial circumstances, risk appetite, and objectives are different. However, if you want to move and you are not sure how to go about it, then speak to an experienced mortgage broker who can advise you of your mortgage options.

 

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE

 

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