Buying second home - how does it all work...

Dd88

Hi,

I'm afraid I'm not the greatest with stuff like this, so I apologise in advance as i'm ashamedly confused how it works! 

When buying a second home as a simple example of selling and moving - lets say hypothetically I owe £100k to my current mortgage provider, and my current house value is £300k.

If I find a house I like for say 500k, is it a case of, as a deposit, I use the 200k equity from my existing house as the deposit, and I then need to take out a new mortgage for the remaining 300k, OR, do I speak with my current lender who would increase my existing mortgage from the 100k to 300k? 

I get confused as I hear terms such as 'porting' mortgages etc. 

'An idiots guide' would probably be appropriate 

Thanks in advance

p00hsticks

Just to clarify - when you talk about buying a 'second home' - do you mean you want to retain the existing home and buy another as well, or are you looking at selling one in order to buy another ?

Dd88

p00hsticks said:

Just to clarify - when you talk about buying a 'second home' - do you mean you want to retain the existing home and buy another as well, or are you looking at selling one in order to buy another ?

Hi p00hsticks - top name.

Yes I've worded that terribly sorry, I mean as in selling my current home and buying a new one. Literally just moving from one house to another  bad start

Thrugelmir

When you sell property A you'll repay the current mortgage and after costs be left with the remaining equity. 

When purchasing property B you use the equity released from selling property A and will need to finance the remainder. 

TheJP

Porting mortgage is taking the current deal over to the new house with the same lender. This is best if you have early repayment charges mainly if you have a few years on your fixed term deal.

Flugelhorn

you work out how much you can afford taking into account the equity you have and the amount of mortgage you could get - when you find the right house you apply for a new mortgage (or port the old one) to the new house - on completion day the old mortgage is paid off by the sale of the old house and any cash then forwarded to sale of the new house along with the new mortgage

Dd88

Thanks guys, all the replies have been very helpful. I think I definitely have a better understanding now. 

AlexMac

Just to add...

When I last traded up to a dearer home, I stayed with my existing lender (the Nationwide; brilliant lender in my view).  I "ported" my original loan (transferred it to the new house) on the same brilliant very low % rate  (an  "interest-only base rate tracker" I'd opted for ten years previously), bunged in the proceeds from the sale, and borrowed an extra £150k so as to afford the new gaff.

Even the Nationwide were not daft enough to offer the same cheap tracker as I'd already got; on BoE base rate plus 0.75%.  This had seemed a bit toppy at 6.75% when I took it in 2000 when the Bank Rate was 6%, but it had dropped to a magical 1.25% by 2011, when we traded up, as the BoE rate had tumbled to 0.5%!   

So Nationwide treated the extra loan as "added borrowing; in effect, a second, separate mortgage on, I think, about 2-3% or so.  Still brilliant, but we opted for one with no early repayment penalties so whenever we had any spare cash, we paid chunks off the dearer loan and kept the low % one as long as we could as it was such cheap money. 

( Then it got even better, because as we approached the end of the term in our mid 70's, Nationwide introduced equally flexible  "Lifetime" lending; not equity release, but simple long-term loans.  But that's another story.)

Shop around.  Make sure you choose a good lender; don't port your existing mortgage just for the sake of it