If you are moving house in Scotland, you may be wondering what happens to your existing mortgage. Can you take your current deal with you, or will you need a new one?
The answer depends on your mortgage product, your lender and your circumstances. Understanding the process early can help you plan your budget and avoid unexpected costs.
Here are five mortgage mistakes to avoid when selling your home and buying another property.
1. Assuming your mortgage automatically moves with you
Your mortgage is secured against your current property. When you sell, the existing mortgage will normally be redeemed, meaning the outstanding balance is repaid to your lender.
Your solicitor will obtain a redemption statement showing the amount required to repay the mortgage for the intended settlement date. This may include interest, fees and any applicable early repayment charge.
At settlement, your solicitor will normally use the sale proceeds to repay your lender. They will also deal with the legal steps needed to discharge the lender’s security over the property.
The remaining funds can then be applied towards your onward purchase or paid to you, after other relevant costs are accounted for.
2. Assuming a portable mortgage guarantees approval
Some mortgage products are portable, meaning you may be able to keep your existing interest rate and certain product features when moving house in Scotland.
However, porting does not mean transferring the existing loan unchanged between properties. Your current mortgage is repaid, and a new mortgage is arranged against your new home.
You will normally need to meet your lender’s lending criteria, including its affordability requirements. The lender must also accept the new property as suitable security.
If you are moving house in Scotland, speak to your lender or mortgage adviser early. A portable product does not guarantee that your application will be approved.
3. Overlooking additional borrowing and repayment charges
If your next home costs more, you may need additional borrowing. Even where your existing mortgage product can be ported, the extra borrowing may be offered at a different interest rate and on different terms.
Moving to a less expensive property can also have implications. If you borrow less and repay part of your existing balance, an early repayment charge may apply to the amount not being ported, depending on your mortgage terms.
Ask your lender or mortgage adviser to explain:
- Whether your existing product can be ported.
- The terms available for any additional borrowing.
- Whether early repayment charges apply.
- Any product, valuation or other mortgage fees.
When moving house in Scotland, comparing the overall costs can help you assess whether porting or taking a different mortgage product is appropriate.
4. Leaving mortgage arrangements until late in the process
When moving house in Scotland, it is important to understand your borrowing position before making a binding commitment.
Once missives are concluded, a legally binding purchase contract is formed, subject to its terms. Tell your solicitor about your mortgage arrangements and any outstanding conditions before reaching that stage.
If your sale and purchase will settle on different dates, discuss this with your lender too. Porting arrangements may have deadlines, and an early repayment charge may need to be paid initially, with any refund dependent on the lender’s conditions.
Do not assume the same arrangements apply across all lenders.
5. Forgetting how the sale and purchase funds connect
When moving house in Scotland, your conveyancing solicitor coordinates the legal work involved in repaying your existing mortgage and putting the new lender’s security in place.
This can include obtaining the redemption statement, liaising with your new lender and requesting mortgage funds for settlement.
If both transactions settle on the same day, your solicitor will coordinate the movement of funds between them. You should also arrange for any additional money required from you to reach your solicitor by their requested deadline.
Moving house in Scotland? Speak to Kaur Sutherland
Our experienced residential conveyancing team can guide you through selling your existing home and buying your next property.
Your lender or mortgage adviser can explain your borrowing options, while we handle the legal requirements of your move.
Planning a move? Contact Kaur Sutherland today or get an instant conveyancing quote through our website.
