Published: 23 March 2012 Topic: News,Money,Mortgages
The clocks have gone forward, the flowers are in bloom and the year's spring home-moving season is now upon us too. But if you are looking at swapping your home for a new one and want to pack your mortgage in your case too, it might not be as easy as you think. Here, we take a look at the potential pitfalls you could encounter and how to prepare for them in advance.
These days, the vast majority of mortgages are classed as 'portable' which, in theory, means you are able to take it with you when you move to a new property.
According to some number-crunching from MoneySupermarket, of the 2,599 mortgage products currently available on the market, only 199 do NOT allow you to port your mortgage - and even these tend to be more specialist deals such as for customers with bad credit scores.
In theory then, moving your mortgage when you move home should not present a problem. But since the credit crunch put an end to 'free and easy lending', banks and building societies are far more cautious about their borrowers moving mortgages to different bricks and mortar. So what could go wrong?
Your own circumstances
Even if you only require the same level of mortgage in order to move to your new home, the lender will reassess you as if you were applying for the borrowing for the first time. David Hollingworth at mortgage broker, London & Country, said: "This is to check that your circumstances haven't changed for the 'worse', for example you have lost your job, become self-employed or even had another child which the lender considers will be a bigger drain on your monthly budget."
If it doesn't like what it sees, your lender will simply refuse to port the loan. This leaves you the option of staying put, or looking for a different bank that will agree to lend.
Jayne Walters, spokesperson at the Council of Mortgage Lenders (CML) said: "We anticipate there will be fewer borrowers porting their mortgage now, because market conditions have moved against them so they often do not meet the criteria necessary to go down this route."
If you find yourself in this position, the good news is interest rates are likely to be a lot lower than the last time you shopped around for the best mortgage deal. HSBC for example has a two-year fixed rate deal priced at just 2.54% if you have a 40% deposit and £1,999 in arrangement fees. Look at this and other deals at MoneySupermarket's mortgage channel .
Bear in mind though that if you are forced to leave your current deal ahead of schedule, you could have to fork out Early Repayment Charges (ERCs).
Shifting lending criteria
Unfair as it seems, it may even be that the lender's own criteria have changed and you no longer qualify for the loan - after all, the contract only applies to the property it is secured against when you took it out. David Hollingworth said: "Your lender could have tightened its affordability criteria since you applied for the
original loan, reduced its loan to value thresholds or changed its policy on interest-only deals."
In fact, Lloyds TSB and Santander have both turned the screws on interest-only deals in recent weeks. You can read more about in our article, Clampdown on interest-only mortgages .
Many homemovers however, will actually need to borrow more to move home as they are stepping up the property ladder. Again, you should expect your current lender to go through your monthly outgoings with a fine tooth comb to see if what's left is sufficient to service the borrowing you are applying for. It will probably use an 'assumed' higher interest rate in its calculations too, which can raise the threshold even higher.
That said, your track record with your current lender, combined with the larger deposit you have accumulated through years of paying down your existing loan (providing you had a repayment deal), can only work in your favour.
It's a good idea to keep a vigilant check on your credit file if you know you will be soon applying for significant borrowing. Make a start by accessing a copy of your credit file through MoneySupermarket's credit monitoring channel.
If you do qualify for the extra borrowing, it's unlikely to be charged at the same rate as your outstanding loan. David Hollingworth said: "Any top-up borrowing will be based on your lender's current range of products and these could be more expensive than your current loan."
Beware also of tie-in periods attached to any further borrowing that don't match those on your existing mortgage. If the two are 'out of sync' you are effectively locking yourself in for the duration of the longest deal, reducing your future flexibility. "If you don't think you will be in your new home for the long term, think twice about taking the extra borrowing on a five-year fix, for example," said David Hollingworth.
Bear in mind also, that you will probably have to pay an arrangement fee on the new slice of cash as well as valuation fees for the lender to assess the new home as security - and maybe even porting and deeds release fees too.
Your new home needs to provide adequate security
Even if you sail through your borrowing criteria, your new home will need to be adequate security for the loan. For example, if the building is unusual in some way, such as a barn conversion, has a thatched roof or is situated in a high-rise block of flats, your lender may also get cold feet and refuse to lend. In cases like this, the best option is to call an independent mortgage broker which will point you in the direction of specialist lender that takes on this kind of property, although again, this is likely to come at a premium.
You can call our mortgage partner, London & Country for fee-free independent advice on 0844 209 8725 and find details of more mortgage deals at our mortgages channel.
Please note: Any rates or deals mentioned in this article were available at the time of writing. Click on a highlighted product and apply direct.