What is porting a mortgage and how does it work?

What is porting a mortgage and how does it work? | YBS

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At a glance:

Porting your mortgage is where you buy a new home, but keep your existing mortgage deal or rate.

You “port” your deal from your current home to your new one.

Porting a mortgage deal follows the same process as switching to a new deal

What are the benefits of porting your mortgage?

Porting your mortgage deal means staying with your existing lender. It can be a good money-saving option especially if you are part way through a deal which carries exit fees and early repayment charges since you could avoid having to pay (or at least be refunded for) these when you move. It can also save you money if the mortgage rate you are already on is lower than any of your lender’s current deals.

Porting can be an easier option too since you don’t have to do as much research and compare rates, product deals and new lenders. Also, since your lender already has a lot of your information, you are less likely to have to complete a huge amount of paperwork.

How does porting your mortgage work?

It is important to note that it is the deal/rate that is ‘portable’, not the loan. You will have to reapply.

Any changes in circumstances could have an effect on your eligibility for the deal. Including:

The loan to value ratio (LTV) of your new property

Lending criteria

Your finances and household income.

Porting a mortgage deal follows the same process as switching to a new deal. In effect, you are asking your lender to re-lend you the money to purchase your new property.

When you buy a new home, the likelihood of it costing exactly the same as the house you’re selling is low. You’re either going to want to:

Borrow more money (or find it from elsewhere)

Reduce your mortgage amount.

Borrowing more

If you are moving to a more expensive property you may need to borrow more money. This is sometimes referred to as ‘topping up’.

The extra money that you would need to borrow would usually be put on a different deal, with a different rate. This gives you (at least) two ‘parts’ to your mortgage. The additional borrowing part could cost more, as your LTV is likely to be higher.

“Topping up” example

If you had a mortgage for £150,000 and moved to a new property that was more expensive, you may need to borrow more. It’s likely that you would need to make up the difference with another mortgage deal.

How much extra you borrow will depend on the amount you sell your current property for and the price of your new home. You may also put some money towards the new home. This is known as equity. The amount left over will be the amount you’ll need to borrow on your new mortgage.

For example:

Current mortgage balance: £150,000

Current property valuation: £180,000 (equity of £30,000)

New home valuation: £250,000

New mortgage: £220,000 (£150,000 current mortgage balance + £70,000 additional borrowing, using £30,000 equity towards the purchase)

Borrowing less

If you move your mortgage deal to a cheaper property you will still have to meet the same product terms. Your new loan-to-value must not exceed your current one. This means you would be unlikely to be able to take the full amount of your mortgage with you when you move.

If you do borrow less on the deal than the amount you owe on your current mortgage, early repayment charges may apply on the amount not being ported.

Borrowing less example

If you had a mortgage for around £150,000, your property is worth £200,000 and you decided to downsize to a home worth £150,000, you will have to reduce your mortgage amount to move it to the new property.

The amount you sell your current home for will determine how much you need to reduce your mortgage by. It will also show you how much you have available to ut towards buying your new home.

For example:

Current mortgage balance: £150,000

Current property valuation: £200,000 (equity of £50,000)

New home valuation: £150,000

New mortgage: £100,000 (£150,000 current mortgage - using £50,000 equity towards the purchase)

In certain circumstances when porting your mortgage deal, you may need to pay an Early Repayment Charge (ERC). However your lender may refund any ERCs paid depending on when your new mortgage completes.