Escaping Penalties on Early Mortgage Redemption

John_M_Business

Hi ... I have a friend (yes, it is a friend... honest!) who has an offer on his current flat.

He's looking to buy with his wife but they can't find the flat they're looking for. There is a concern that the buyer will pull out.

I have suggested, given uncertainty in the current marketplace, that they could still sell, but not buy... but he's concerned as he got a discount mortgage and would have to pay back the entire discount if he redeemed early (this runs into thousands). The mortgage is 'due' in 2005.

So the question is this: could he legally sell his house, not pay back the mortgage, but place his cash into a high-yield interest account and use this to pay back the monthly payments until the mortgage ran out?

Obviously, the bank, if they get wind of the sale, will be asking for the money back - but could they legitimately force him to pay immediately and swallow the penalty?

If this is the case, does anyone have an ingenuous way around this? Are there any suggestions you can make?

Thanks in advance.

alexei_2

When I sold my house in 2002, there was a 22 day gap between selling and buying my current house. In this instance the mortgage remained portable and I incurred no penalty. This was with Abbey National but each lender probably has its own rules on the length of time allowed. I would guess a short period of time would be ok but I think they will have to check it out with their lender.

PHickman

The bank / building society (lender) will hold the deeds to your friends property - so it is extremely unlikely that your friend can "pay back the monthly payments until the mortgage runs out".

It would be wiser for your friend to include the lender in discussion.  The lender can put a retention on the amount, probably wrapped around the fact that they will expect demand that your friends takes out their next mortgage with them also!  If your friend signs that they will take their next mortgage (or more precisely port their existing one and add some) with the same lender I am sure your friend will find the lender extremely accommodating..! It may be prudent for your friend to check out the lenders rates for existing customers... the lender will expect the redemption penalty to be ported, but it may be possible for your friends to get the same rate.

MarkyMarkD

The BM approach referred to above is a common one.

paint

The Portman also were flexible (offering six months between selling and buying) as long as I re-started the same mortgage (the tie in etc., was obviously to be extended too).

Like averagepunter though I found a better deal elsewhere.

Fingers crossed your friend's lender will show similar common sense!

John_M_Business

Sure - but what if my friend doesn't want to buy in the near future? Perhaps he has got a good offer on his flat and wants to take a 2 year 'timeout' on the property market...

It looks like unless he ties himself to a binding contract he's going to have to swallow the penalty.

dougk_2

If its a good offer then its worth taking the penalty.

If not then IMHO he's best not to sell and carry on as is.

a simple sum....

if the rent for period till mortgage ends + early repayment charge is greater than the expected sale price at end of the mortgage period then bad move
(if its value increases then its def. a bad move)

If he feels house prices are going to drop by more than that much then good move!


Unfortuantely thats the nature of the beast and he just has to think of all the money he has saved up till now.

Basically what he pays back will be like having the variable rate rather than a discount.

MarkyMarkD

Sure - but what if my friend doesn't want to buy in the near future? Perhaps he has got a good offer on his flat and wants to take a 2 year 'timeout' on the property market...

It looks like unless he ties himself to a binding contract he's going to have to swallow the penalty.

Yes, because he tied himself to a binding contract when he bought the first mortgage.