How do mortgages work when moving house?

[SunFleck]

Hi

We currently live in our first home but are hoping to start planning to move into a bigger house. I'm super confused about mortgages. Will we need a deposit meeting the banks ltv requirement for the difference between our current and new house or does the deposit need to be in relation to the total cost of the new home? Also would we take a new mortgage for the difference in cost or would we need to add it on to our existing deal? Thanks for any help.

Your new mortgage will remain exactly as it is (if you are withing a fixed rate deal) and you will borrow or put in cash (or both) for the extra and any new mortgage you need will be on a new product. You may have to stay with the same lender if you have redemption penalties on your existing mortgage and you'll keep the same terms and waive any redemption fees as long as your purchase completed within a month of your sale (although 9/10 it'll be simultaneous) (this was nationwide but I imagine the conditions are similar elsewhere). Hope this helps.

The LTV will be the mortgages combined

Yes thanks @Desmondo2016

Can I also check with the deposit. If we have a house we bought for say £150,000 and sold it for £180,000. Would this mean we had £30,000 from the house sale to put towards a deposit for the new house?

Yes, your equity becomes your deposit. If you need to borrow extra and you are still locked into a mortgage you have an additional mortgage. You can arrange it so that this is short term and you can roll both into one when the term on the original deal is up. We found that the additional mortgage was more expensive interest/payment wise and our payments will go down once they amalgamate this year.

I think talking about deposits is confusing when you already own a property, you actually need to think about equity. Your equity is the value of the house minus the remaining mortgage, so to give an example your current property is worth £180k and the outstanding mortgage amount is £130k say, so you have £50k equity.

For the new purchase, you then need a mortgage for the purchase price less your equity (unless you want to put in additional savings to reduce the mortgage amount or keep some of the equity as cash). But assuming the new house costs £280k, and you want to put it the full equity from your sale, you need a mortgage for £230k. You don't need to put up a 'deposit' as such because the equity is coming from the sale, assuming you are able to get a mortgage for £230k of course. If you could only borrow £225k then you'd need to pay the additional £5k from savings.

You do also need to make sure you have cash to cover the sale and purchase costs (solicitors fees, survey cost, estate agents commission, removal costs, any building work you want done immediately on the new house) and also the stamp duty, unless you want to take these costs out of your equity, in which case you need a bigger mortgage - say you were allowing £10k to cover these costs, you'd need a mortgage for £240k - but if you have the savings definitely better to pay the costs upfront as you'll pay more interest on a bigger mortgage.

Hope this makes sense!

Do be aware also of whether your current mortgage has any early redemption fees in which case as PP says you will need to stay with the same provider...