Is the mortgage market turbulence getting you down? Have you got a mortgage-related question you need answering? Email in and we’ll get Nick Mendes, mortgage technical manager at John Charcol, to give his advice. If you have a question for our experts, email us at [email protected].
Question: We bought a £300,000 house in Lancashire four years ago with a 10 per cent deposit. We want to sell next year, but the property value has likely dipped. Do we now need to sell for over £270,000? Or is there a way to move even if we can’t sell for this amount?’
Answer: Moving home is an exciting time. But this can be overshadowed by the more stressful parts, like arranging a mortgage and selling your home.
It’s important to get the right mortgage whether you’re downsizing, upsizing, or moving into your dream home or the biggest wreck on the street as it’s all you can afford.
It’s true, the property market has taken a dip in 2023 with analysis from Savills projecting a decrease of 3 per cent as borrowing costs start to ease in the latter half of the year. This means you may find the conditions are little more favourable when it comes to putting your property on the market as there may be more buyers.
A decrease of 3 per cent isn’t too bad when you put it into a longer-term context. Looking further ahead, a five-year growth of 17.9 per cent is expected, equating to an average increase of £45,521 by the end of 2028.
However, if you decide to sell your property, you will need to ensure that any charges on the property are cleared.
Your existing lender will provide you and your solicitor a precise redemption figure (outstanding amount) for your mortgage for the day of completion. Any surplus shortfall will need to be repaid through other sources in the event that equity from the sale of the property isn’t sufficient, otherwise the lender won’t release the charge allowing for completion.
The first options for when you move from a home where you already have a mortgage to a new property is take your existing mortgage with you to your new home via “porting”.
There are positives and negatives to consider when porting and the lender will want to ensure the new security is adequate and the product you currently have is suitable.
As a result, you will need to ensure you have sufficient funds to make up the difference to complete on the onward purchase.
The second option typically suits homeowners who have more equity in their property.
For homeowners who want to move but equally want to hold on to their property to get the best possible sale price, there is an option called Let to Buy.
Let to Buy involves renting out the home you currently live in and using the equity to put towards a deposit on a home elsewhere. This is a simultaneous completion, and usually involves two different lenders.
Your current residential mortgage will change to a Let to Buy, typically releasing up to 75 per cent loan-to-value (LTV), of which the funds will clear the current first charge and remaining funds can then be put towards the deposit of the onward purchase.
The new residential lender will then use the surplus funds from the Let to Buy application to act as your deposit contribution – plus anything else you’ve chosen to contribute – and release the remaining funds to complete on the transaction.
A benefit for Let to Buy is that you can remortgage your current home and take out a new mortgage to live in, and benefit from being a landlord. You’ll have avoided the costs of a bridge and have more options for when you want to sell the property.
The Let to Buy mortgage is based on expected rental you would achieve rather than personal income. You could be finding it difficult to sell your property and want to complete on the onward purchase.
Things to Consider with Let to Buy
- Look at how high the rates will be. They tend to be more expensive than you would see for typical residential mortgages, similar to buy-to-let rates.
- Consider whether you are OK having the financial commitment. If you have two mortgages, balancing and managing possible rental voids – between periods of letting the property – could be very stressful for some individuals.
- You may end up facing extra stamp duty. By renting your house out via rent to buy, you’ll be an additional homeowner, meaning there are additional stamp duty costs to consider. You’ll have to pay an extra three per cent in Stamp Duty on top of the standard rates.
