Guide to Selling a House with a Mortgage
At the end of 2021, there was £1613.4 billion in outstanding mortgages in the UK. Meaning it is safe to say, most homeowners still have one. If though, you are looking to move, how does a mortgage affect your house sale?
There are a few options and below we will detail how you can complete your property plans, even if you still have a mortgage hanging over you.
Read on to see how selling a house with a mortgage can be of benefit to you.
Can you sell a house with a mortgage?
You certainly can. In fact, it is common and is likely the main way people move house. It isn’t totally straightforward though. You will have two options – it is just a case of seeing which one is more viable for you.
When selling a house, you will receive a sum for the sale. Depending on what is left on your mortgage, you could pay the balance and have money left over to put towards a new property.
The second option is to ‘port’ your mortgage to another property, should you be looking to buy again.
What happens when you sell a house with a mortgage?
As mentioned above, you either clear the mortgage balance through the sale of the property or ‘port’ it to a new property. Deciding what to do is down to each individual, as certain circumstances may favour one over the other. The lender may also have specific terms about porting a mortgage. This could mean that you find a lender that once approved you, now won’t.
Porting a mortgage
Porting a mortgage is the process of transferring your existing mortgage deal to a new property. This allows you to keep the same interest rates, value and terms. In simple terms, the sale of your property clears the outstanding mortgage and starts the same mortgage again on the new property. If though the property is worth more than the mortgage value, you will have to consider taking out an additional loan that is unlikely to be at the same rates.
Porting a mortgage is popular among those homeowners that managed to get attractive rates of interest when getting their original loan. A new mortgage may see higher rates or different terms. Making it cost more overall.
Is it better to port a mortgage or pay it off?
This really depends on your current situation. If your current rate is working in your favour, and is better than others on the market, then port it. If paying your mortgage off early would incur penalty charges, porting may also be worthwhile as it will save you money.
How will your mortgage get paid when you sell your house?
Once your house is sold, the money from the sale goes towards paying off the original mortgage, with any left-over funds being made available for you to put towards the new property. This is all handled by your solicitor, so you’ll never actually see the cash. This is unless you are in the position where you are able to sell, buy a new house, pay for it outright and have cash left over.
What should you consider before selling a house with a mortgage?
There are a few factors you definitely need to consider. They could all have a determining factor in whether you should sell. Sometimes, it really is better off waiting. Other times, a quick house sale may be more beneficial.
- If you are paying off the mortgage in full and not buying another house, the sale price must be higher than the amount left on the mortgage.
- The proceeds from selling your home will go towards clearing the mortgage. If you do not sell for a value that covers the mortgage, you will need to continue making mortgage payments until it is cleared.
- You will remain fully responsible for all payments on the house until a sale is completed.
- If you have recently lost your job or have had a severe drop in income, the lump sum that comes through from your property sale, could impact your opportunity to claim any benefits.
- If you have negative equity, it would not be advisable to sell.
How long after getting a mortgage can you sell?
There is often mention of the 6-month rule. Whilst it isn’t the same for all mortgage lenders, many, if not most operate in this way. This means you must be living in the house for at least 6 months until you can sell. The reason for this is to do with the rules around lending. Most of the lenders will not allow new loans to be granted on property registered with the land registry for less than 6 months.
This rule aside, you would also have to weigh up how much you want to sell. If the factors determining it are based on work, childcare, or health then you shouldn’t let anything get in your way. If though, you just fancy a different house, be aware, prospective buyers may be put off by the fact you wish to move so fast.
The processes for selling a house with a mortgage
If you do decide to sell, then there are a few things to take into consideration before putting your house up for sale.
- Work out how much is left to pay. When selling the house, the lender will want to make sure that the mortgage is repaid. Secure a free online house valuation. This will enable you to get an idea of whether the sale will cover any outstanding mortgage. If it doesn’t, consult your lender.
- If the valuation allows you to sell and have the mortgage covered, move onto the steps of selling through a trusted estate agent. If the sale cannot cover the mortgage, you are in mortgage shortfall. This could result in legal action being taken against you, especially if you buy another property.
Pros and cons of selling a house with a mortgage
As with anything else, there are pros and cons to both. If you are considering selling whilst you still have a mortgage, you could decide based on the below.
Pros of selling a house with a mortgage
- If you have fallen behind, a sale may allow you to stop repossession and clear the outstanding debt.
- A change in your personal life may have meant you can no longer afford to pay. If you were to sell this property, you may be able to by a cheaper property with a more affordable mortgage.
The valuation of your property could mean that by selling, you clear the debt and have plenty of cash to spare for a new house.
Cons of selling a house with a mortgage
- If you cannot pay your mortgage lender, you find yourself in mortgage shortfall. Not only is this an extremely stressful time, but you also run the risk of facing expensive legal costs.
- If your financial situation has caused you to require a short sale, your house will be sold for significantly less than you would have normally got for it.
- Up until the moment your house is sold, you are responsible for the mortgage payments on it. Even if you have since secured a new house.
Our team at SOLD.CO.UK are experts in selling property and advise you to always seek professional advice when it comes to mortgages. If you are in a position where you need to sell your house quickly or have a mortgage you have ported and are looking to buy, contact us today.