Can You Sell a Property with a Mortgage?
Selling a mortgaged home is a common scenario for homeowners across the UK, but it can raise questions and concerns. Navigating the process of selling properties with mortgages can seem overwhelming but whether you’re upsizing, downsizing, relocating, or selling a house you inherited, understanding how your mortgage affects a property sale is essential.
Our property experts have created this guide to share everything you need to know about selling a home that still has a mortgage on it, from how the process works to what costs you might incur, helping you make informed decisions every step of the way.
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Can You Sell Your Property With a Mortgage?
Yes, you can sell a property that still has a mortgage on it. It is common for home sellers to have an outstanding mortgage when selling their home. Though the process is straightforward, there are a few key points to consider before proceeding.
When you sell a mortgaged property, the outstanding loan does not transfer to the new owner. Instead, it must be repaid in full on or before the completion date of the sale. This is typically done using the proceeds from the sale itself. For example, if your remaining mortgage balance is £150,000 and you sell the property for £250,000, your solicitor will use part of the buyer’s funds to pay off your lender, and the remaining £100,000 (minus fees and costs) will be transferred to you.
How to Sell a House with a Mortgage
Below we break down the actual process of selling your house with a mortgage. This includes taking you through the process step by step from requesting a redemption statement to securing a property buyer and finally repaying your mortgage.
Request a Redemption Statement
To begin, you’ll need to contact your mortgage lender and request a redemption statement. This is a formal document showing how much is left to pay on your mortgage, including any early repayment charges and administrative fees. It’s important to be aware of any early repayment penalties tied to fixed-rate deals or other mortgage terms, as these can affect the overall financial outcome of your sale.
An early repayment charge (ERC) is a fee that some mortgage lenders charge if you repay your mortgage in full or make a significant overpayment before the end of a fixed or discounted rate period. It’s designed to compensate the lender for the interest they’ll lose as a result of you leaving your agreement early.
Secure a Property Buyer
Once you have your redemption statement in hand, you can decide in collaboration with property expects (such as estate agents and property auction houses) on an asking price for your home taking into consideration the costs involved in selling your property, its outstanding mortgage and any early repayment fees applicable by your lender.
After securing a buyer for your property, you can then move forward with paying the remainder of what you owe on your mortgage.
If you’re looking to sell your house fast, read our guide covering the quickest house selling options, to simple changes you can make to your home to attract the right buyers and speed up the process.
Repay Your Remaining Mortgage Balance
Your solicitor or conveyancer will liaise with the lender to ensure the mortgage is cleared at completion. Once the mortgage is repaid, the lender will remove its charge (legal claim) from the property’s title, which is necessary for the buyer to take full legal ownership.
In cases where your home’s market value is lower than the outstanding mortgage (negative equity), selling becomes more complex. You’ll need your lender’s permission to sell at a loss, and you must cover the shortfall yourself, which may require additional borrowing or savings.
What is Negative Equity?
Negative equity occurs when the outstanding mortgage on your property is greater than its current market value. This means you owe more to your mortgage lender than your home is worth. This situation can happen if property prices fall after you’ve bought your home, especially if you made a small deposit and borrowed a high percentage of the property’s original value. For example, if you bought a home for £200,000 with a £190,000 mortgage, but its value drops to £170,000, you would be in £20,000 of negative equity.
Can You Transfer a Mortgage to Another Property?
Yes, you can transfer a mortgage to another property in the UK in some instances. This process is known as porting your mortgage. Depending on your mortgage agreement terms, you might be able to transfer your existing mortgage to another property. Transferring your existing mortgage deal to your new home is a little more complex than simply paying the remainder of your mortgage.
When you port a mortgage, you’re essentially repaying your current mortgage on the sale of your old property and taking out a new mortgage of the same value and terms on your new home. This allows you to keep your existing interest rate and avoid early repayment charges (ERCs), which can be substantial if you’re still within a fixed or discounted deal period.
However, porting isn’t always straightforward. Your lender will usually require you to go through a fresh affordability assessment, even if you’re borrowing the same amount. If your income, credit rating, or financial commitments have changed, the lender might reject your porting request or impose new conditions.
If your new property is more expensive and you need to borrow more, the additional borrowing will typically be offered on a new mortgage product, possibly with a different rate and terms. This means you could end up managing two separate mortgage sub-accounts with different end dates and repayment conditions.
Will I Need a New Mortgage When Moving Home?
If you’re planning to move to a new property, you’ll usually need to arrange a new mortgage to fund the purchase. The size of this new mortgage will depend on the cost of your new home, how much deposit you’re putting down, and your current financial situation, including your credit history. You might also be able to use any equity built up in your current home to help finance the move.
It’s wise to compare mortgage deals carefully when buying a new property. Look at key factors such as interest rates, fees, and repayment terms to find the most suitable option. You may also benefit from speaking to a mortgage broker, who can guide you through the process and help you secure a deal that fits your individual needs.
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