Updated: Jan 30
If you have an existing mortgage and are thinking of selling your home, it’s useful to understand what happens to it when you do. Whether you are selling your home to buy another, or plan to use the money for something else, such as savings, investments or paying off debts, we’ll aim to dispel a few myths and explain what you need to know.
Can I sell my house if it still has a mortgage?
You don’t have to wait until the end of your mortgage term to sell since mortgages can usually be transferred to a new property or paid off with the money that comes from the sale.
However, selling a property with a mortgage can be a problem if the value of your house is than you owe. If this happens there would be a shortfall from the amount paid, so the lender may prevent you from selling unless you can pay off the rest by other means. Take a look at our guide to negative equity for more about how to avoid this from happening and what to do if you find yourself in this situation.
Do I need to tell my mortgage company if I’m selling my home?
If your home has a mortgage on it, you won’t be able to sell it without telling your lender. This is because mortgage companies put what is known as a ‘charge’ on a property when they lend against it. A charge appears on the title deeds of your property and acts as security for the mortgage provider. It indicates their legal interest in the property and prevents it from being sold, inherited or transferred before they have been repaid in full. When you sell a property, your solicitor will see there’s a charge on it and request a redemption statement from the lender showing how much needs to be repaid.
What happens to the money when you sell a house?
When the buyer’s funds are received, your solicitor first pays the redemption charges directly to your lender to satisfy the charge. The remaining sum (your equity) can then either go towards your new property if you are buying at the same time, or into your bank account when the sale completes.
How can you sell your house and buy another at the same time?
If you have a mortgage and you are planning to buy a new home and sell your existing one at the same time, you have two options:
i) porting your existing mortgage, or
ii) paying it off and applying for a totally new one.
‘Porting’ means taking your existing mortgage with you to a new property. Most mortgages are portable because lenders usually want to keep you as a customer, but not always, so you will need to check with them if yours is. Porting can avoid early repayment charges, and/or mean you can keep a low interest rate that may no longer be available. However, it also means limiting yourself to your existing lender’s products so you may miss out on better deals being offered elsewhere.
In some cases it may be more cost effective to pay off your mortgage and apply for a new one. This is especially true if you have built up equity in your home and only need a smaller loan to value (LTV) mortgage. The best way to find out what is available is by speaking to an independent mortgage broker who has access to all products on the market and can advise you what the best deal for you would be.
If you intend to buy a property but there’s a wait between selling and buying, some lenders may allow you to port your mortgage within a certain amount of time, but there might be additional charges for doing so.
What happens if I sell my house and don't buy another?
If you have somewhere else to live and aren’t planning to buy another property when you sell, any equity you have in the property will be transferred to you as a cash lump sum after the mortgage is repaid. If you do not have any equity in the property, or you are in negative equity, you will not receive any money when you sell your property as it will all go to your creditors.
If you are considering selling your property to use the money for something else, you may want to take independent financial advice on whether it might have an implication on your taxes and/or benefits. You don’t normally have to pay capital gains tax when you sell your own home but there are some exceptions to this, so check the HMRC website to find out whether you will have to pay any tax on the money you receive from the sale.
If you’re out of work and you sell your property to pay off debts, you will also need to consider what money you are going to live off, as receiving a lump sum from the sale of a property might affect whether or not you can receive benefits.