Taking out mortgage and selling at same time - advice

viper987

Hi,

I have recently been making enquiries about a new mortgage to fund a property purchase. The new property would be my main residence.

I intended to fund the purchase with approximately 50% deposit (savings) and 50% mortgage.

I also planned to put my current property on the market at the same time, with the idea that if it sells quickly I could cancel the mortgage, but if not simply go ahead with the mortgage and pay it off as soon as my current residence is sold.

I had a mortgage agreement in principle and affordability was not an issue as I was only borrowing less than twice my income and my current mortgage is nearly paid off.

However, during the application, I was told by the advisor that it would not be possible to proceed if my intention was to pay off the mortgage when my current property is sold, because mortgages are long term products and not designed for such situations.

I would like to know if this is correct, since it was contrary to my understanding, and of course many people do pay off mortgages early.

Thanks

housebuyer143

viper987 said:

Hi,

I have recently been making enquiries about a new mortgage to fund a property purchase. The new property would be my main residence.

I intended to fund the purchase with approximately 50% deposit (savings) and 50% mortgage.

I also planned to put my current property on the market at the same time, with the idea that if it sells quickly I could cancel the mortgage, but if not simply go ahead with the mortgage and pay it off as soon as my current residence is sold.

I had a mortgage agreement in principle and affordability was not an issue as I was only borrowing less than twice my income and my current mortgage is nearly paid off.

However, during the application, I was told by the advisor that it would not be possible to proceed if my intention was to pay off the mortgage when my current property is sold, because mortgages are long term products and not designed for such situations.

I would like to know if this is correct, since it was contrary to my understanding, and of course many people do pay off mortgages early.

Thanks

Don't forget to factor in the extra stamp duty temporarily.

Yes, technically they are not meant for short term borrowing but they legally cannot stop you paying it off, so just don't tell them that is your plan, because anything can happen. Afterall you are paying them fees and interest for the time you have the money and maybe an ERC so they are not likely to refuse.

mi-key

Just check if there is any ERC on it, this can be as high as 10% of the amount borrowed, so can be a big chunk.

They may not like people paying them off early as they make less money, but if it either has no ERC or you are happy to pay it, then there isn't anything they can do as long as you pay off the whole amount. 

viper987

Thanks for the replies. Lesson learned.
Early repayment charges seem to be generally around 2% first year going down to 1% second year for 2 year fixed rates.

I'm wondering whether to wait for my application to be approved before putting my current home on the market, just to be safe.

housebuyer143

viper987 said:

Thanks for the replies. Lesson learned.
Early repayment charges seem to be generally around 2% first year going down to 1% second year for 2 year fixed rates.

I'm wondering whether to wait for my application to be approved before putting my current home on the market, just to be safe.

In your shoes I would go for an ERC free tracker if your plan is to pay down the loan massively. I did a similar thing last year although didn't pay it right off and didn't pay any ERCs. 
I wouldn't delay, put it on the market. Worse case you take it back off. 

dimbo61

You could also look at an offset mortgage to fund the purchase of your new home.
Once you have sold your old home you can transfer the sale proceeds  and the Extra 3% stamp duty refund into the offset account.
Pay down most of the mortgage but keep a small balance till the fixed deal ends and then clear the rest of the mortgage.