What happens to your mortgage when you upsize?

[someone12]

Sorry if this is a very basic question but I’m not originally from the UK and still getting familiar with how mortgages work here.

Say I have a flat worth X with half of that in the mortgage at a rate of r1% and I want to sell my flat to buy a house worth 2X (to make things easy to reason about). Say I’m also in the middle of the fixed period, with multiple years left before I can remortgage. Let’s also assume I want to stay with the same amount of equity invested (ie X/2, ie 25% of the house I want to buy).

What are my options? Can I keep X/2 in equity, X/2 on the first mortgage at r1% and then get a second mortgage for X at a second rate of r2%?

Or do I have to stick with the same lender and negotiate an increase of my mortgage from X/2 to 3X/2?

Or early repay (presumably very expensive?) my first mortgage and get a new one with any lender for 3X/2?

Something else?

Thanks a lot

 

[filu63]

@someone12 Your notation is a little confusing. Let's say you have a £200k flat with a £100k mortgage and are looking to upsize to a £400k house.

Don't think of 'equity' as money in the bank - it's simply the difference between what you owe and what you'd get if you sold.

Anyway the google keyword you were missing was 'porting' a mortgage. Since you are in your fixed period you would generally expect to port the £100k mortgage to the new property, and take out an additional loan (with the same lender) for the remaining £200k that you need. The original mortgage stays on its original interest rate and fixed term, and the new loan would be at whatever interest rates are available from your lender today. You'd then have two loans, with separate interest rates, fixed terms, etc.

You could also repay the £100k mortgage in full, paying the early repayment charge, and get a £300k mortgage with any lender.

Note the bank will assess your income etc for the additional borrowing, you're still limited by their assessment of what you can afford.

 

[emmsmom81]

@filu63 When/how/should I combine these two mortgages into one? We upsized last year and HSBC told us we need to keep both mortgages with them going forward, that can surely not be correct?

 

[sarah41]

@emmsmom81 If you have two mortgages with different terms they can only be combined (without paying an ERC) by waiting till both fixed terms expire and then contacting your bank to re-mortgage onto a single rate.

 

[dash1800]

@sarah41 Which might be painful if let's say. Product A expires every 3 years and product B expires every 5.

 

[cupofdaisies]

@emmsmom81 This is precisely why we didn't port our TSB mortgage when moving. The 2nd mortgage had to be on a variable rate which was terrible, or a fixed rate with a totally difference cadence to the original one, and that was nowhere near the best rate around. Either way we'd have been on a terrible rate on at least one of the mortgages before being able to combine them.

Paying the £1k ish exit fee was much cheaper in the long run.

 

[zogy101]

@emmsmom81 See my reply above

 

[emmsmom81]

@zogy101 Hmm sorry but that still doesn’t really answer if I should combine the two and if hsbc was lying that both mortgages need to stay in their name

 

[evangtete]

@emmsmom81 HSBC was not lying to you regarding Porting

 

[zogy101]

@emmsmom81 You could combine them by paying them off with a third mortgage but often they are different %ages and advantageous to keep them as is.

Two institutions won’t give mortgages on the same property.

 

[emmsmom81]

@zogy101 So you are saying the same thing as my hsbc adviser which I don’t understand: why is it better to keep two mortgages and be limited to hsbc and their rates over combining them or moving both to another company with a lower apr? Or other advantages like unlimited overpayments?

 

[zogy101]

@emmsmom81 You might have one on 1% and one on 5% … you can only remortgage for 6% … meaning you are far worse off

If you can get a lower rate then do it

 

[emmsmom81]

@zogy101 I could be on 4 and 5 and could remortgage all for 3.2%. That example only makes sense if apr goes up and it’s predicted to come down and or stay stable for a bit

 

[zogy101]

@emmsmom81 So you’ve answered your own question

 

[emmsmom81]

@zogy101 But it will even out over 25-30 years, no? Only difference being that I’m stuck with hsbc and their rates. Oh and I have to remortgage every 1-3 years instead of 2-5 and my monthly payments will fluctuate way more often as I’m more exposed to market trends.

I dont know, still sounds like one mortgage sounds better to me :/

 

[mariposa2154]

@emmsmom81 We're in this position. Two mortgages with the same lender finishing this year. We're planning to remortgage both together on the same term but both still technically separate. They'll then both have the same end date so can then look at new lenders then.

 

[donnypt2003]

@emmsmom81 There's no need to combine them as it gives you flexibility to, say, fix one and track the other. Earlier products may also allow more overpayment.

If they all come up for fixing at roughly the same time you can usually pay one arrangement fee across all of them if putting them on the same deal, but still remain separate accounts (as each is a contract over the full mortgage term).

 

[someone12]

@filu63 !thanks. Yes equity is clear to me, it is what I’m not borrowing (ie the theoretical value of the property less the borrowed amount, so £100k in your example).

Thanks for porting, that was indeed the term I was missing.

If porting is effectively getting an extra loan, why does it have to be with the same lender? That’s very restrictive. Why couldn’t I simply go with another lender? Is it because it would be harder for two lenders to seize the house in case I failed to repay the mortgage?

I’m about to remortgage and, depending on a few factors, I might want to upsize either this year or in 3 or 4 years from now. What you explain makes me wonder if I should put additional thought in the early repayments conditions when remortgaging (so that I could get out of the mortgage and get a fresh one with the best rate possible).

 

[zogy101]

@someone12 The lender puts a charge on your registration of ownership (deeds) in the land registry … another institution would put another charge … if you stopped paying … both would have to take legal proceedings with you and with each other … not pretty … so they won’t do it.

 

[boregard]

@someone12 If you don't want to be with the same lender, pay the early repayment charge (you'll only have this on a fixed rate mortgage usually not on tracker).