What is mortgage porting?

Sometimes it happens that we decide to change banks or offers in order to save on interest rates. Such a process is called remortgage, and we have written about it at least three times on our blog. But what if you would like to keep your current mortgage, but change properties? That’s exactly what mortgage porting, to which this article is devoted, is all about. So let’s find out how this procedure works, how much it costs and when it’s worth undertaking a mortgage porting to another property.

What is mortgage porting?

Mortgage porting or mortgage transfer

As we mentioned in the introduction, mortgage porting involves transferring a mortgage from one property to another. Being precise, we could say that it is about changing the object of mortgage security without drawing an additional portion of cash from the bank, changing the interest rate or repayment schedule of the obligation.

Mortgage porting or mortgage transfer

What does a mortgage transfer entail?

When you decide to sell a property covered by a mortgage, you can terminate the contract - part of the funds received from the buyer will go to the bank for repayment, while the remaining amount will be available for deposit.

However, this is a suboptimal solution, because by doing so, you automatically give up your existing mortgage agreement, and when you buy your next property, you will have to look again for a bank or pay a possible commission. Worse, there is a real risk that the interest rate provided by the new contract will no longer be as favourable as before, and this will obviously translate into higher payments.

What does a mortgage transfer entail?

Mortgage porting allows you to avoid these consequences - by keeping your existing contract, you can maintain potentially more favourable repayment terms, avoid commissions and other costs associated with obtaining a mortgage, and you don’t have to analyze current financing offers.

How does mortgage porting work?

Let’s briefly discuss the mortgage transfer process:

Choosing the right property

As with buying a UK property on a normal basis, an indispensable part of the entire moving process is choosing the right property. Remember that when deciding on a mortgage transfer, you must stick to budget constraints - the price of the new property must be close to the value of your current home, unless you have extra cash.

Choosing the right property

Applying for a mortgage transfer

Although mortgage porting involves less paperwork, you will also be forced to send an application to the bank. The documents will focus on the property with particular attention to its value and condition. The vast majority of lenders will also check your creditworthiness.

Using the services of Extend Finance, you can count on the formalities to go smoothly and without much hassle :)

Property valuation

After applying for a property change, it’s time to have your new home appraised and assessed (Homebuyer Survey). Remember that from the bank’s point of view, the most important thing is to keep the LTV ratio no higher than 95%.

Property valuation

Transaction procedures

The timing of the purchase of a new property is actually the most difficult step in the mortgage change process, as the purchase and sale transactions need to be lumped together, with the sale being the one that must occur minimally beforehand. As with any change in the legal status of a property, conveyancing will also be necessary in this case .

Completion

The culmination of the entire mortgage porting process is completion, which is exactly the same as when you bought your first home.

What to consider when planning a mortgage porting?

First of all, be aware that not every mortgage can be transferred to another property. It all depends on the terms of your agreement with the bank, and sometimes on the terms of your previous cooperation or the current financial situation you are in. You must also take into account:

What to consider when planning a mortgage porting?

Value of property

Recall - from the point of view of mortgage porting, the value of the property you are buying is an extremely important factor. If your new home is significantly more expensive than your existing one, there will be a need to organize additional funds, which, if you have enough creditworthiness, you will be able to borrow from the bank, but probably on different terms. In an era of still high interest rates, you need to make sure that you are able to afford a more expensive property.

Additional charges

Mortgage porting protects you from loan origination fees and possible early repayment penalties, that’s a fact. However, it’s worth noting that changing your property will never be cost-free - you will certainly pay Stamp Duty Land Tax and administrative fees related to banking procedures. If you value convenience, you’ll also need to factor in a mortgage broker’s fee.

Terms of the mortgage agreement

At the time of this article (October 2024), the Bank of England’s benchmark interest rate is 5.00%. This is quite a lot, and many customers are still repaying their mortgages on more favourable terms - an aftermath of the agreements made with banks in recent years. Keep in mind, however, that in the vast majority of cases, the interest rate is locked in for a period of 2-3 years, so that a significant portion of borrowers still face having to pay back hundreds of pounds a month in interest.

Terms of the mortgage agreement

If you know that your current mortgage agreement is coming to an end within the next few months, it is worth considering the sense of moving it. After all, it may turn out that the effort spent on filling out additional documents is disproportionate to the savings possible. Sometimes it turns out that it is cheaper to conclude a new agreement.

When does mortgage porting pay off?

In our opinion, the most important factor affecting the profitability of transferring a mortgage is the terms of the current contract. If you know that you will pay a few hundred or a few thousand pounds less over the course of a year or two, the choice is generally very simple - after all, the math speaks for itself.

When does mortgage porting pay off?

We can also tell you from experience that many customers choose to keep their current mortgage contract if early repayment would incur a high fee. In some cases, the early repayment charge is as high as 5% of the amount surrendered, which, for a property worth £300,000 or £400,000, is a cost that makes it pointless to apply for any mortgage.

The third common reason behind mortgage porting is the purchase of a property of very similar value. This is due to the peculiarities of the British banking system - when buying a more expensive house, you will be forced to enter into an additional mortgage agreement or commit your own savings, which in turn will give you the opportunity to take advantage of better financing offers. Buying a cheaper property, on the other hand, you may not get approval from the bank due to the lower value of the collateral.

When does mortgage porting pay off?

Summary

We hope that today’s post was helpful and brought you closer to the issue of mortgage transfer. If you would like to check whether it will be profitable for you to stay with your current contract with the bank, you are welcome to contact us - our advisors will be happy to make the appropriate calculations and support you with the whole process, if necessary.