Selling a House with a Mortgage
Here's how to sell your home when you have a mortgage.
Selling a house with a mortgage is a common practice in the UK. However, there is more than one way to do this, as well as some considerations to make when choosing to do so. As the nation’s biggest estate agency, filled with property-selling experts, we’re on hand to help you navigate this process and sell your lovely home with peace of mind.
In this guide, we’ll answer some of the most frequently asked questions about selling a house with a mortgage, including what happens to your mortgage when you sell your house, how to sell a mortgaged house and other options such as porting.
Can you sell a mortgaged house?
Selling a house with a mortgage is a frequent method of selling, however, there are a few things that you need to consider before you put your house on the market. First, you need to check with your lender to find out if there are any penalties or fees for paying off your mortgage early. If there are, you will need to factor them into your calculations when deciding on a sale price for your house.
When you sell your house, the income from the sale will be used to pay off your mortgage. If you sell your house for more than the outstanding balance on your mortgage, you will receive the difference as profit. However, if you sell your house for less than the outstanding balance on your mortgage, you will be responsible for paying the difference.
One reason your house may become worth less than the remaining balance of your mortgage and therefore sold for less is due to negative equity. Negative equity often happens due to falling house prices, but can also be the result of taking out an interest-only mortgage, where you only ever pay the interest on the amount you borrow rather than repaying the mortgage sum.
What happens to your mortgage when you sell your house?
In most cases, your solicitor will work with your lender to obtain a redemption statement, which will provide the amount that you owe on your mortgage. This amount will be paid to your lender with the revenue from the sale. Your solicitor will then distribute any remaining funds to you. This means that you will no longer be responsible for making mortgage payments on that property; however, if you have any outstanding fees or penalties associated with your mortgage, such as paying it off early, you will still be responsible for paying them.
If you’re planning to buy another property, you may need to take out a new mortgage to finance the purchase. Alternatively, you may be able to transfer your existing mortgage to the new property through a process called porting. We’ll cover porting in more detail later in this guide.
How do you sell a mortgaged house?
Selling a mortgaged house is similar to selling any other property, but there are a few extra steps that you need to take. Here’s a step-by-step guide to how to sell a house with a mortgage:
Check with your lender:
Before you put your house on the market, you need to check with your lender to find out if there are any penalties or fees for paying off your mortgage early.
Determine your sale price:
Once you know the penalties and fees associated with your mortgage, you can determine your sale price. Your sale price should be enough to cover your outstanding mortgage balance, any penalties or fees, and any other costs associated with selling your property.
Choose a solicitor:
You will need to choose a solicitor to help you with the legal aspects of selling your property.
Market your property:
You can market your property through an estate agent or by listing it yourself on a property website.
Accept an offer:
Once you have received an offer on your property that you’re happy with, you’ll need to formally accept.
Complete the sale:
Your solicitor will work with your lender to pay off your mortgage and distribute the proceeds of the sale to you.
Do I need a new mortgage when moving home?
If you are moving to a new property, you will typically need to take out a new mortgage to finance the purchase. The amount of your new mortgage will depend on the purchase price of your new property, your down payment, and your creditworthiness. You may also be able to use any equity you have in your current property towards the purchase of your new property.
It is important to shop around for the best mortgage deal when you are buying a new property. Consider factors such as interest rates, repayment terms, and fees when comparing mortgage offers from different lenders. You may also want to consult with a mortgage broker who can help you find the best mortgage deal for your specific situation.
What is porting a mortgage, and how does it work?
Porting a mortgage is the process of transferring your existing mortgage from one property to another. This can be a good option if you are selling your current property and buying a new one at the same time. When you port your mortgage, your existing mortgage terms, including your interest rate and repayment schedule, will remain the same. You may also be able to avoid penalties or fees for paying off your mortgage early.
Is porting or paying off my mortgage best?
There are further advantages to porting your mortgage in addition to avoiding early repayment fees:
If your initial mortgage is at a lower interest rate than what you would have been offered on the new property, the lower rate will be carried forward. This is beneficial if interest rates have increased since you first took out your mortgage.
As the lender will already have some of your information, you won’t need to go through the entire mortgage application process again. This not only saves time but comes as a relief, as applying for a mortgage can feel stressful or overwhelming at times.
However, there are some disadvantages to mortgage porting:
If you stay with your existing lender and their terms, you miss the opportunity to shop around for more favourable rates elsewhere.
Porting can help you avoid penalties for repaying your mortgage early, however, it can come with its own set of additional costs, such as valuation fees, arrangement fees, legal fees and possibly a small exit/transfer fee.
If the property you’re looking to buy is more expensive than the one you’d like to sell, the additional money you’ll need to borrow is likely to be at a different rate. This results in two mortgage products that you’ll need to keep track of and pay.
You may not be able to port your mortgage if you are downsizing or if your new property does not meet your lender's eligibility criteria. You may also need to go through a credit check and reapply for your mortgage if you are increasing the size of your mortgage.
For these reasons, you may decide that it’s simpler to pay off your mortgage and accept any early repayment costs.
Want to find out what your house could be worth?
Book a free house valuation or sell your home for free with Purplebricks. We can even help with tips on how to sell your house.
At Purplebricks, we don't take a percentage of your selling price, or charge a flat fee. Our estate agent fees are 0. No hidden costs or fees, it's a free estate agent service.