Many people have heard of the term remortgaging but lesser known is perhaps what porting a mortgage is. Here we answer some frequently asked questions to get to the bottom of the topic.
If you’ve been following our blog post series on later life mortgages and borrowing, you may also be interested in the point below about whether people over the age of 50 can also port their mortgage.
What does it mean to ‘port a mortgage’?
The word porting comes from the word ‘portable’ i.e. to easily move something. In the context of mortgages, therefore, it means to be able to move an existing mortgage from a current property to a new one.
Most mortgages are portable so a homeowner that is looking to move house may not need to apply for a new mortgage, they may be able to port the mortgage they already have, depending on their individual terms and conditions.
What are the benefits of porting a mortgage?
The main benefit of porting a mortgage is that the homeowner can transfer their current mortgage to their new property and therefore will be subject to the same interest rate, end date and terms and conditions.
As the lender already knows a substantial amount of information about the homeowner, the process of porting a mortgage should be more straightforward..
Another benefit of porting a mortgage arises if interest rates have risen since the homeowner took out their existing mortgage. In these circumstances, it means the homeowner can continue borrowing at a lower rate than they may be able to access if they had to apply for a new mortgage.
Is there a downside to porting a mortgage?
While the homeowner may be better off sticking with their existing mortgage if interest rates are rising (as above), the opposite may be true when interest rates are dropping. The homeowner may be able to find a better deal by remortgaging to a new mortgage product, but the benefits of finding a better rate must be weighed up against the costs of paying any early repayment charges and exit fees from the existing mortgage.
Porting a mortgage isn’t entirely cost-free. A mortgage lender will still need to do their due diligence on the new property so there will probably be new valuation fees, legal fees and a transfer fee. It is important to always do the calculations and never make assumptions.
If the new property is more expensive and additional borrowing is required, the lender may suggest the original mortgage is ported across, but the additional amount is borrowed on a new product. This can mean that the two mortgage products are out of sync and will come to an end at different times. The homeowner could end up paying out for two different mortgage product fees, should these apply, each time their current deals come to an end unless they are prepared to wait and pay a higher Standard Variable Rate (SVR) on one in order to merge the two at a later date.
Another option for mortgage holders needing to increase their borrowing could be to select a new product from the lender’s currently available range, for the whole amount required. In this instance, the lender may typically waive any early repayment charges from the current mortgage product, in order for the borrower to move onto a new deal. This may sound quite similar to remortgaging but is still considered to be porting as the lender is waiving the early payment charges with the aim of retaining the customer.
Does a lender still check that the homeowner can afford the mortgage?
Yes. It’s a complete myth that once the lender has agreed to a mortgage deal, the homeowner can port it without any questions asked.
The lender will need to ensure that the borrower can afford the mortgage by reviewing their income, expenditure, credit profile, financial history, and undergoing financial stress testing – all the normal procedures when applying for a new mortgage. If the homeowner’s circumstances have changed e.g. they have gone from being employed to self employed, or seen a reduction in their income, the lender may not approve the application to port their mortgage.
Even if the homeowner’s financial situation hasn’t changed, the lender may have changed their own criteria, so it’s a good idea to find out if this is the case before applying.
Does the lender need to approve the new property?
Again, the answer is yes. The lender will have approved the original mortgage based on a property that they deemed adequate security for the funds being released. They will need to undertake the same checks on the new property. However, if the new property is very different from the property on which the original mortgage was granted, there is a possibility that the lender will not agree to port the mortgage. This is because each lender has different criteria for the property types that it will and will not lend on. For example, some lenders may not approve a mortgage for a listed property, a new build, or a home of non-standard construction.
Similarly, if the loan to value (LTV) changes substantially between the existing and new property, the lender may not agree to port a mortgage as it may not meet the criteria on which the original mortgage was agreed.
Can over 50s, people in later life, or retirement, also apply to port their mortgage?
This will depend entirely on the mortgage lender’s criteria. The fact that the lender was prepared to lend to the homeowner in the first place is a good indication but it is not a guarantee that a porting application will be approved.
Increasing numbers of mortgage providers have increased their upper age limit for mortgage lending and in many cases removed it altogether (including Suffolk Building Society). On the whole, there are no specific age-related criteria for porting mortgages – in general, the lender’s age criteria will apply to all new mortgage applications, remortgaging and mortgage porting.
Older borrowers may find it beneficial to opt for a lender that operates a manual underwriting system, so their circumstances will be judged on an individual basis rather than relying on a computer algorithm.
How can a mortgage holder apply to port their mortgage?
A homeowner can approach their lender directly to discuss their plans and requirements. Alternatively, borrowers may wish to seek the advice of a mortgage broker or intermediary. It’s crucial to do the maths and calculate whether porting or remortgaging is the better option, so it can be beneficial to get the support of an experienced mortgage expert.
What if a mortgage is not portable?
A homeowner who finds that their mortgage is not portable has two options – to stay in their current property until their current deal ends, or to repay the mortgage early, incurring any early repayment charges applicable to their current mortgage deal. Early repayment charges may be calculated as a percentage of the original loan amount, or the current mortgage balance, or may be set up on a reducing basis as the loan progresses. Details of any early repayment charges will be outlined in the mortgage offer issued to the borrower before the mortgage was taken out, so this should be checked carefully.
Porting and remortgaging are often used as interchangeable terms but in fact, they are quite different. Having an understanding of the differences between the two will help homeowners make informed financial decisions when they are looking to move home.