Almost 40% of the UK homeowning population have a mortgage. That’s a lot of borrowers potentially selling their home with a mortgage still on the property. What happens in this scenario, and what happens if your home is locked in a fixed rate mortgage? That’s what we’re here to find out with this guide to selling your house with a mortgage.
What should I consider before selling my house with a mortgage?
Selling a house before the mortgage is fully paid off involves multiple factors that need careful consideration. Here’s what you should know:
Mortgage redemption and property value
If you’re planning to pay off your mortgage in full and not purchase another property, make sure the sale price of your home is higher than the remaining mortgage loan.
Using sale proceeds to pay off mortgage
The money you make from the sale will be used to settle your existing mortgage debt. If the sale doesn’t cover the entire mortgage, you’ll need to continue making payments after the sale.
Ongoing financial responsibilities
Until the property is sold, you’ll be responsible for all mortgage payments, insurance and other household costs.
Role of solicitor or conveyancer
After the sale, your solicitor or conveyancer will take care of repaying your existing mortgage loan.
Income considerations post-sale
Be mindful of your income situation after the sale. If you’re out of work and receive a lump sum from the sale, this could affect your eligibility for benefits.
Dealing with negative equity
If your property is in negative equity, meaning you owe more than it’s worth, selling may not be your best financial option. Explore other alternatives in this case.
What difference does a fixed mortgage make when I sell my home?
Mortgages tend to have initial periods where the term is fixed. This is usually between two and five years, although it’s not uncommon to see longer. Here’s what you need to know about selling inside and outside of a fixed term.
Fixed term
If you’re locked into a fixed-term mortgage, you may be required to pay an early repayment charge should you sell while the term is still ongoing. The charge is usually a percentage of the mortgage that decreases as the fixed term reduces.
For instance, a fixed term with three years left might incur a 3% early repayment charge. So if your mortgage had £50,000 left, the early repayment charge would be £1,500. It’s important to check the terms and conditions with the lender, as each will have slightly different criteria for early repayments.
After the fixed term
Once your fixed term ends, you’re free to sell your home without incurring an early repayment fee. However, you may still need to pay an exit fee, which is usually a few hundred pounds. Again, you’ll need to check with the lender to see their specific criteria.
What happens to my mortgage when I sell?
Selling your home can lead to various outcomes for your mortgage, such as paying it off, transferring it or opting for a complete remortgage. Each mortgage has its unique terms, so it’s important to review those first.
If you find the terminology confusing, your mortgage lender can clarify the jargon for you. It’s quite common to sell a home while still having a mortgage, and lenders are well-equipped to guide you through the options.
Mortgage brokers can also offer helpful advice, handling paperwork and maximising your borrowing potential. Consulting with a lender or advisor also allows you to assess your financial situation, including your current home’s value, existing mortgage and borrowing capacity, which is an excellent starting point for planning your move.
Your mortgage terms will indicate any early repayment fees you might incur. While most lenders allow an additional 10% repayment on your mortgage annually, fully paying it off could result in fees ranging from 3% to 5% of the remaining balance.
If you’re considering a new property, you can discuss remortgage options with your lender, especially if you’ll need a larger mortgage. Another option is ‘porting’ your existing mortgage, which can save you from incurring new mortgage fees.
However, the feasibility of these options depends on your lender’s policies, so it’s advisable to consult them or a mortgage broker who can guide you and advocate on your behalf.
How will the mortgage be paid when I sell my house?
After your home is sold, the proceeds from the sale are used to settle your existing mortgage. Any remaining funds can be allocated towards your new property. Your solicitor manages this entire process, meaning you won’t directly handle the money. The exception to this is if you’re in a situation where you can sell your current home, purchase a new one outright, and still have surplus cash. Or if you’re selling your home without planning on buying another one.
What is negative equity?
If the value of your property is lower than your mortgage, you’re facing negative equity. This situation complicates selling your home, as the sale price won’t be enough to cover your mortgage. While negative equity has become less frequent due to rising property prices over the last decade, it can still occur during periods of economic or political instability.
Do I need to tell the lender if I’m selling my home?
Informing your lender is necessary, and they should be among the first you consult. While you may also seek advice from an independent advisor, your lender can guide you through various options, which makes them an essential resource in the process.
What’s the process for selling my home with a mortgage?
Here’s a breakdown of what to expect when selling your home with a mortgage still in place.
Assess the remaining mortgage balance
The initial step in selling a property with an outstanding mortgage is to calculate the remaining balance on your loan. Mortgage lenders prioritise ensuring that the loan is fully repaid before the property changes hands.
To do this, you’ll need to arrange a property valuation to ascertain if the sale proceeds will cover your remaining mortgage. If not, you’ll need to seek your lender’s approval to proceed with the sale. If you’d like to get an instant online property valuation, then use this accurate property evaluation tool.
Settle your financial obligations
Once the valuation confirms that the sale price will cover your remaining mortgage, you can go ahead and sell your property. If, however, the sale price falls short of covering your mortgage, you’ll be facing a mortgage shortfall. Failing to clear this debt and purchasing another property could lead to legal repercussions from your lender. In such cases, a short sale could be an option, where your lender agrees to accept a lesser amount to finalise the property sale.
Secure new accommodation
After selling your property, the subsequent step is to find a new home. Alternatively, if you’re selling a second home, and have made any profit on the sale, you would need to see if you’re liable for capital gains tax.
Does having a mortgage on my house affect the sale time?
Selling your home can be a complex process, especially if you’re dealing with mortgages or other financial constraints. While having a mortgage on your home doesn’t necessarily slow down the amount of time it takes to sell your home, finding a buyer and going through the sale process can take up to three months.
Property Rescue specialises in fast sales, which makes us an ideal choice if you’re looking to sell your home quickly without getting bogged down in paperwork and procedures. We can buy your property for cash, fast, even if it’s still got a mortgage on it.
We’ll take care of every little detail, including conveyancing. With Property Rescue, you not only get to sell your home fast but also gain the peace of mind that comes with knowing you’re in capable hands.
Summary: mortgaged properties
In short, selling your home while it still has a mortgage is quite common and not an issue at all. Whether your property is mortgaged or fully paid off, Property Rescue is here to assist you in securing a quick sale. Get a free, no-obligation quote to determine your home’s value and see how we can meet your needs.