Can You Sell Your House If You Have A Loan Secured On It?

Can I sell my house if I have a loan secured on it? 

This is a very important question that you may be asking yourself if you’re thinking about selling your house.

The short answer is that yes, you can put your house up for sale when you have a loan secured on it. When you have a loan secured on your home, and you need to sell your home, you’ll need to understand the details because on the day your sale completes, the lender must be repaid in full. Any lender that has a loan secured on your home will have their charges registered in order to prevent you from selling without first repaying their loan.

Let’s find out more about selling a property when you have a loan secured on it. 

Can you define ‘loan’? 

In talking about a ‘loan’, we are including a mortgage as well as other loans. Most homeowners are likely to have a loan secured on their home in the form of a mortgage taken out when the house was bought. There are also homeowners that borrow money and secure this loan against the value of their home. This is referred to as a second mortgage and your property can be used as collateral to satisfy the debt so that the lender is certain to get their money back. 

So can I sell my home before the end of my mortgage term?

Yes, you can sell your house before the end of your mortgage, but only if the sale price exceeds the amount that is left to repay on your mortgage loan (including early repayment charges).

Will I be able to move my mortgage to my new home?

Usually, the answer will be ‘yes’ because this is done frequently. It is a process that is called ‘porting’ and a lot of mortgages have this facility. Porting will usually come with fees and there will be different costs applied, depending on whether you are increasing or decreasing your level of borrowing.

The process of porting is the same as if you were switching to a new deal or new lender because you’re asking to borrow against a different property. You will have to reapply for the loan and your affordability will be reassessed (although the deal remains the same with the same interest rate and the same terms). In addition, the home you’re buying must be valued by the lender (so that they can check their investment is viable), so you will have to pay a valuation fee.

I’m downsizing, so can I port my mortgage to a cheaper house?

If you’re downsizing and moving to a cheaper property, you’ll be borrowing less than you were. In this case, porting could be a good option, especially if you’re on an attractive interest rate. Assuming your circumstances haven’t changed since your original mortgage application, there should not be any issues with satisfying your existing lender’s criteria.

You will need to keep in mind that if your mortgage has an early repayment charge (usually expressed as a percentage), it’s likely that the charge will be applied to the difference between the two mortgage amounts.

However, your interest rate and mortgage terms will remain the same, but because you’re borrowing less, your monthly payments will reduce (if the same rate is applicable).

What will happen to my mortgage when I sell my home?

In the majority of cases (unless you are porting it), the mortgage on your existing home will be paid off when you sell your home. The solicitor / conveyancer that is dealing with your paperwork will contact your lender to get a redemption statement and then repay the outstanding loan amount to them by using the funds from the house sale.

Can I still port my mortgage if I’m not moving into my new home right away?

Many people complete on their sale and purchase on the same day, so a ported mortgage deal will move from one property to the other and the lender will then continue to receive their monthly payments from you. However, if there is going to be a delay before you take ownership of your new home, your lender may still let you port, as long as you complete within a certain timeframe. This will usually be up to 30 days but check with your mortgage company.

Is there anything I can do if my lender won’t let me port my mortgage?

There are three main reasons why a mortgage provider could refuse to let you port your mortgage.

The first could be that you no longer meet their lending criteria. As you will be asking them to lend on a new property, you will have to re-apply so your income will be assessed. If your circumstances have changed (such as your employment status or salary have changed or your outgoings or debt have significantly increased) it could be that you no longer qualify for the same level of loan.

Secondly, the lender may not want you as a customer. If you have made late payments or your existing mortgage is going to run into your retirement, you might be considered as being a high-risk customer.

Finally, it could be that the new property does not meet the lending criteria of the mortgage company. For example, if it is considered uninhabitable, has a short lease, or a thatched roof, you may discover that they are unwilling to port your mortgage.

If you are not able to keep your current mortgage deal, you will have to source a new product; either with your current lender or a different one. In this situation, you’ll want to speak with an independent mortgage broker or financial adviser to help you find the product that suits your personal circumstances.

What happens if the loan or mortgage secured on my home is for more than my house is worth?

If you need to sell your house when you have a loan secured on it, but the secured loan exceeds the value of the property, you’ll be in what’s known as negative equity.

Can I sell my home if I’m in negative equity? 

If you try to sell your house for less than the amount you owe on it, your mortgage company can block the sale. This is because, as mentioned, the mortgage company will have a registered charge on your property. It’s in place to prevent you from selling your house without repaying the mortgage. Selling your house for less than the amount you owe your mortgage company will mean that the mortgage will not be repaid in full.

Is there anything I can do to sell my house when I’m in negative equity?

There are a few options available to you to enable you to sell a house with a loan secured on it when you have negative equity.

The first is to use your savings to pay off the secured debt. If this isn’t possible, you could borrow an unsecured loan to repay the debt. However, you should be aware that an unsecured debt usually carries a higher interest rate, and you should only borrow an amount that you can afford to repay; otherwise you’ll be going deeper into debt.

Alternatively, try asking for help from your family and friends. If they are able to lend money to you, make sure each party understands the agreement and that it is a loan and not a gift. Not agreeing these terms at the start could lead to arguments later on.

Another option is to transfer your debt to your next property. This will be tricky if you are already in negative equity and it will often carry admin fees, but it would enable you to sell and move.

If you do want to sell but aren’t in a rush, you could try waiting for the property market to improve before selling your house. Doing so would increase the amount you’d get for your home, but could take a long time. 

Any questions? 

We hope you’ve found this article to be informative and helpful if you have a loan secured on your home and you want to sell. To get your free, no-obligation offer for a fast house sale, call us, or send an email.