Moving home can be a combination of exciting, demanding and stressful all at the same time. If you’re co-ordinating a family move, it can also be a matter of balancing priorities, such as schools, transport links and distance from different work locations. Regardless of whether you're downsizing or buying your ideal home, you will need to plan carefully in advance of getting the ‘For Sale’ sign up, and the mortgage is a large part of that planning.
Just because you've already been through the mortgage application process previously, it doesn't mean the process will be any simpler this time around. This is especially true if you have complex income that a lender will not easily grasp when assessing your application.
The whole process can become much more challenging than previously when you add the stress of trying to sell your current house, just to work out how much deposit you will have from the sale if nothing else! This guide will walk you through your options so you know what needs to go onto the mortgage section of your “To Do” list.
What are my options?
When you move, you have two options: you can move (or ‘port’) your existing mortgage to your new property, or you can obtain a new mortgage with the same lender or a new mortgage with an entirely different lender. It's worthwhile to understand the terms of your existing mortgage contract to see if porting is an option. Or better yet, let an independent broker do this for you, as they can also review the wider mortgage market as well as your current lender’s options., we'll offer you a quick overview of the various choices you have.
How do I port my mortgage?
The majority of mortgages issued nowadays are portable, so you can transfer your existing mortgage to your new residence, subject to meeting qualification criteria. That part is really important. The loan application process will still need to be completed, which means you retain the remainder of your fixed rate, but the application is assessed as a brand-new case. If your new property is more expensive than your present one and you do not have sufficient cash resources, you may need to increase the mortgage amount to make up the difference.
It is crucial to find out from your lender how much the new rate and arrangement fees will cost. You will not get the same terms as you had on your original deal and your new mortgage will be in two parts once you have moved. Depending on when you took out your original there's a chance that the second part of the loan will have higher interest charges than the first one.
Once you have all of the information from your lender or broker about porting options, you then need to compare this with the alternatives.
New mortgage with your current lender
Rather than retaining your current deal, you also have the choice to totally replace your existing mortgage with your current lender. You will incur additional expenses even though you might be able to acquire a lower rate, which would be the logical reason to consider it. You may be required to pay an early repayment penalty, typically 1-5% of your outstanding mortgage balance in order to get out of your present arrangement. The amount you pay will vary based on how long you have remaining on your present contract. The amount you must pay will decrease as your initial low rate nears its conclusion. Generally speaking, if you are on your provider's standard variable rate, you should not have an early repayment penalty.
It is definitely a good idea to review other options if new rates are better with your current lender. If this is the case, it is also advisable to compare your current lender’s new rates with the best that the market has to offer.
New mortgage with a new lender
Rather than remaining with your current lender, you can source a new lender to provide you with a mortgage for your new home. Alongside the proceeds from the sale of your home, these funds are used instead of your current mortgage to buy the new home, and you can borrow more if needed (by reducing your deposit) to settle some of the larger moving costs, like stamp duty.
Choosing to move away from your current lender during an initial lower rate needs to be balanced carefully, as exit costs and early repayment penalties are frequently associated with mid-term mortgage cancellations. There can also be lender arrangement fees and valuation fees associated with your new mortgage. When determining if switching lenders is the right course of action for you, be sure to take these factors into account – or better yet, get your broker to do it for you so the entire mortgage market is examined for value.
As a professional with complex income, there is more to sourcing a new mortgage than rate alone, as many lenders want evidence of income presented in a certain way. This is another job you can pass to the broker’s To Do list rather than keeping it on yours!
If house prices have increased dramatically in your area since you purchased your present home, this may be a big financial advantage, but only if you are moving into a cheaper property. If this is the case you may be in the enviable position of being able to move and also reduce your borrowing at the same time. If your ‘loan to value’ reduces (the percentage of your property value that is mortgaged) you may be eligible for lower interest rates, especially if your loan to value is now below 60%.
How much can I borrow?
The days when lenders used to multiply your annual income by a number to work out how much you can borrow are long-gone. Lenders now focus on something called ‘affordability’.
Essentially, lenders will look at your household income, the likely bills and living costs for your new home set-up, any debts that are not being settled; and then work out borrowing based on how much spare cash is available, allowing for potential future increases to your mortgage payment if interest rates were to go up.
Lenders want to be sure the household finances are resilient and can withstand shocks. If affordability is on the edge, lenders will reduce the amount they will lend, or outright decline an application. Recovering from a decline without paying high rates can be challenging, so it is important to get it right first time.
Whilst household outgoings can be managed for a good borrowing outcome to a certain extent (such as reducing or paying off debts before an application) the key factor to focus on for professionals is to ensure the lender uses all of your income as part of the affordability calculation.
How much can I borrow as a self-employed professional moving home?
The traditional way to assess income for self-employed individuals is to refer to limited company trading accounts and/or personal tax returns over 2-3 years. Lenders will then look at profit trends over that period and use an average this if the profits are steady or increasing, and use the latest year if the profits are a bit lower in the most recent year. If the income is decreasing sharply, or there are ups and downs in the business performance, lenders are easily spooked and can decline the application altogether.
Cleerly have different arrangements in place to assess incomes of self-employed professionals, such as locums and barristers. Based on their relationships with underwriters at mainstream lending institutions, they can use underlying contracts and income projections to alleviate low definitions of income. A higher income figure means a more comfortable affordability assessment for the lender, leading to a much-reduced chance of a declined application based on affordability.
How much can I borrow as a contractor moving home?
The people behind Cleerly pioneered flexible underwriting for professional contractors, and have been doing this for nearly two decades. Whether you work via an umbrella company or your own limited company, your Cleerly Mortgage Consultant will make the case for a lender to use the gross contract income from your contract to define your income, rather than umbrella company payslips or limited company trading accounts. Again, relationships between Cleerly and the lenders’ underwriters are really important to maximise the affordability assessment in your favour.
How much deposit will I need?
The more you can put down as deposit, the better. For a lender a larger deposit also means less risk, making it easier for them to say ‘yes’ to your application. Most lenders will ask for at least 10% of the new purchase price as a deposit if you have owned a property before. As a home mover you should hopefully have this, or more if you’re selling a property that has gone up in value.
How much will my monthly mortgage payment be?
Planning your budget is crucial when buying any property, especially if borrowing more or if rates have increased since you took your last mortgage. It is vital that you plan your finances very carefully to work out what you are willing to spend every month on your mortgage payment. Stripping out non-essential expenditure in the months leading up to a mortgage application is very good training for a more expensive monthly payment. In short, it is better that you have done a spring clean on your expenditure before a lender tells you they have concerns about discretionary spending. Of course, once you have exercised this discipline on your finances, a lender will dissect your spending too! Ultimately a lender will determine what you can borrow, and therefore what your monthly payments will be, but you should set your own limits based on what is comfortable beforehand. Speak with a specialist Mortgage Consultant at Cleerly to get a bespoke monthly payment quote for your circumstances - you can arrange this here.
How can I increase my chances of getting a home mover mortgage approved?
Securing a new mortgage can feel like you have a mountain to climb, especially if you have a complex income situation. Meticulously controlling your expenditure is part of the journey, but there’s plenty more you can do to control the outcome in your favour. Here are the important steps you can take: -
Give your credit score a boost
This is not something you can do overnight – it takes months of preparation before you need to apply for a mortgage. Therefore, make sure you complete the necessary preparation early. If you don't do it, you risk being rejected. The lender's goal is to make you a profitable customer and ensure that you repay your debt. This involves evaluating your credit score and predicting your future behaviour based on your past conduct with commitments, especially your mortgage. These standards are not published, so it is impossible to determine exactly what lenders want. However, your specialist Cleerly Mortgage Consultant will have a good idea of which lenders are more selective and what they look for in a borrower. Lenders are much stricter now, and if you have a bad score, almost all lenders will reject you. Get copies of your credit file from all three credit reference agencies — Equifax, Experian and TransUnion (formerly Callcredit), or better still get a multi-agency credit report that contains the information that all three agencies hold about you in one report. But don’t bother paying for ‘credit scores’ that the agencies try to sell, they are indicative only as lenders use their own metrics.
Check your credit report
Once you receive your multi-agency credit report, please check everything for errors. If you think your information is incorrect, ask your lender to correct it. You can add a letter of correction to your credit report explaining the reason for the inaccuracy and your understanding of how the situation arose. If the credit reporting agencies cannot help you, you can lodge a complaint with the Financial Ombudsman Service. Keep in mind that lenders also rely on your application and past transactions with you, which will not be reflected in your credit file. For example, if you have had credit agreements with your bank, and apply for a mortgage with them, they can also use their experience of dealing with you on other financial products, like bank accounts, to assess your credit worthiness for a new mortgage.
Register to vote
Things become very tricky for you if you do not appear on the electoral register. Visit www.gov.uk/register-to-vote to add yourself to the electoral register, or check if you are already registered. For someone who is not eligible to vote (e.g., foreign nationals), you can add a note to your credit file stating that you have other documents proving your address/residence. Being on the voters register will also boost your credit score (see above).
Check addresses on your credit report
Check your address is up to date on all active accounts (even if you no longer use them), and make sure the dates you were resident there are also accurate. Inconsistent data makes you look untidy to potential mortgage lenders, and could affect their decision to lend.
‘Disassociate’ past relationships
If you are financially linked to an individual whom you no longer hold any financial connection with, such as ex-partners, you can write to the credit referencing agencies and ask them to complete a ‘Financial Disassociation’. Subject to all joint financial accounts being closed, the lenders are obliged to permanently remove any link to that person. If an ex-partner has bad credit and they are linked to you, it can cause a straight decline of a mortgage application.
Build / rebuild your score
If you have a bad credit score you cannot turn it into a good one quickly. It takes time and corrective action to restore it. One way you can do this is to get a credit card and spend on it each month. This proves to lenders you can borrow responsibly without falling behind on payments. You should only do this if you can settle the card in full every month. Accumulating new debt without reducing the balance can have a negative impact, especially when you already have a weak score.
Stay on top of your commitments
If you miss payments on debts, utility bills, or mobile phone contracts your creditors will register these on your credit report at the drop of a hat. The impact can be huge if you then approach a new mortgage lender (or even your current lender) with a stain on your payment history. Set up direct debits rather than payments that you have to remember to make, and ensure you have the funds in your bank account to meet these.
New credit applications
These should be stopped in the months leading up to your application for a new mortgage. Whether you are accepted for that new credit card or car loan, or declined, the application is stamped on your credit history. New credit applications also include certain insurances, new mobile phone contracts, and new energy suppliers. If your new mortgage is the most important financial application right now, prioritise that and apply for these other things after your mortgage is approved.
What is the right type of mortgage for me?
Choosing the right mortgage set-up is really important, and an area where you should take advice. Your Cleerly Mortgage Consultant will guide you through the decisions you need to make based on your preferred outcomes and available mortgages for your circumstances. Cleerly will give you an overview of the different types of mortgages available, helping you make an informed decision that aligns with your financial goals and circumstances. Decisions you will need to make are how you will pay the loan back (capital repayment versus interest only, or maybe part-and-part); or whether you opt for an initial rate where the interest is fixed, or whether it can move up and down (trackers and other variable rates). There are also flexible mortgage options that many independent professionals find useful, such as overpayment, underpayment and offset facilities. All can be explained by your Cleerly adviser so you make a suitable decision.
How much do I need to pay in fees to buy my next home?
Mortgages come with various fees and charges, and on top of this there are fees related to tax and other professional services you need to pay for, like solicitors, surveyors and estate agents if you are selling your current home. Our guide breaks down these costs below, so you know exactly what to expect during the home buying process, allowing for better financial planning.
Lender arrangement fees
Lenders will attach a ‘product fee’ or ‘arrangement fee’ to their most competitive mortgage deals. They are typically around £1,000, but in recent years they can be higher in return for lower rates. The arrangement fee is part and parcel of a lender’s ‘mortgage product’ alongside the interest rate they offer. Most lenders will let you add these to the mortgage, but will charge interest on the fee if you do this, making the amount you pay higher than the quoted fee.
Survey fee
This is the cost of inspecting your new home, and is payable soon after your offer has been accepted. The lender will want to know it is worth what they are lending against it, and will also want to know about any essential repairs before they make a decision on your mortgage application. Basic mortgage surveys can be offered free by some lenders, although they typically carry a fee of £200-£300. You can choose to upgrade this inspection to a more detailed one for you as the new homeowner, which can spot expensive repairs that the lender is not concerned about but may affect your decision to buy at the agreed price. The more detailed survey, also known as a Homebuyer Survey, usually costs around £400-£700.
Legal fees
These are paid to your solicitor and cover their fees, as well as third party costs the solicitor has to pay on your behalf to obtain various reports that are essential in registering the property in your name. Remember, you will have to pay a separate set of fees for the sale fo your existing property if you are selling at the same time as buying.
Fees can vary a lot depending on the firm you use – cheap is not always best with solicitors, as a bad service can lead to a very stressful process with little communication from your solicitor. Costs tend to be in the range of £1,000-£3,000 if you are buying and selling.
Stamp duty (tax)
The full name for this is Stamp Duty Land Tax (SDLT), and the amount you pay will depend on whether you are retaining your current property, have buy to let properties in the background and the purchase price of the new property. If you will own more than one property following your new purchase, unfortunately you will have to pay an additional 3% on top of the basic stamp duty rate – this can be painful so check your numbers! You can calculate your stamp duty liability via the gov.uk stamp duty calculator here.
Estate Agent’s fees
Most people who sell residential property do so via an estate agent. The benefit is to maximise exposure to the right potential buyers to ensure the best possible price is obtained. Fees you pay to an estate agent for selling your property can be great value or money wasted depending on your experience! The estate will charge their fee as a percentage of your sale price or a flat fee. Estate agent’s fees can vary hugely from around 0.75% to 3% - negotiation is important or you could end up paying too much. For context, if your estate agent manages to sell your property for £300,000, you could end up paying anything from £2,250 to £9,000 (plus VAT on top!). With estate agents it pays to choose wisely and negotiate hard.