Late night panic - porting a mortgage - can I actually afford this house? Help!

[Thickhead]

I'm in the middle of filling out documents for our conveyancer and am suddenly in a panic that I've messed everything up and can't actually afford the house I'm buying. Please can someone hold my hand and help guide me through this? I'm thick as shit when it comes to numbers and just need it spelt out like you would to a five year old.

We're selling our house for £338,000.
We're buying a house for £350,000.

We have £35k in the bank.

Now then. I thought this meant our money to spend on a house purchase was:
Value of sale: £338,000, PLUS money in the bank: £35,000. So £373,000 in total.

So £350k house purchase seemed sensible with wiggle room for solicitor's fees, renovations, furniture etc.

HOWEVER.

The £35k in the bank is from raising a mortgage against our current house.

We owned our house outright (inherited it) until recently when we raised a mortgage on it for £40,000. Pretty much all our money was tied up in the house, we're skint otherwise.

We've spent some of the £40k on house renovations but still have £35k left in the bank.

We've checked and can in theory port the mortgage.

So really - does that mean we have £338,000, MINUS £40k mortgage, so £298,000 equity? So really can we only afford to be buying something of equal value to the one we currently own?!

And I've just seen we need to pay a deposit on exchange of contracts. Typically 10%. £35,000. But that wipes out pretty much everything that's in our bank. The money raised from the mortgage.

I just feel like a total idiot. Any help would be really appreciated.

Don’t forget stamp duty and solicitors fees.

But with that amount of equity assuming you have some income I can’t see any bank refusing you a mortgage if you extend it a bit.

Hey. First off, what is the remaining balance of your mortgage?

Are you wanting to pay off the £40k mortgage ?

Surely you have the proceeds of the sale of your house, minus estate agents and solicitirs fees, plus the cash in the bank, minus stamp duty to spend.

You will then have a mortgage of £40k to pay off.

No stamp duty thank goodness because of the holiday. But yes, solicitor's fees, surveys, etc...

Is it that simple then? We just need to apply for a bigger mortgage?

We've only made the first couple of repayments, so there's still £39,600 remaining to pay on the mortgage.

@comefromaway that's what I thought! No, not wanting to pay off the mortgage...

If that's the case then we're okay!

If you port the mortgage you will be porting the amount you currently owe. Or you can ask for more.

When I recently moved house our old house sale fell through (we only owed £10k on the mortgage.) so we asked to borrow £125k in total until it sold. We just had to prove it was affordable.

If I have read this correctly when your house is sold your mortgage will be ported, you’ll need to extend your current 35 thou by 12 thou, making your mortgage 47thousand to give you the 350 thousand for your next purchase

Your 10% deposit at exchange will be 10% of (£350k - £338k) that's £1,200 and not £35K

@chukwe 10% of £350,000 is not £1200

Oh I see what you're saying. But that's wrong, 10% deposit is of the house value, so OP will need £35k.

@SealionsAndSand

Oh I see what you're saying. But that's wrong, 10% deposit is of the house value, so OP will need £35k.

That's how it was calculated when I ported my house in July this year.

My house was £365K, buying £540K. I transferred £17.5K at exchange.

I didn't deposit £54K. Unless my solicitors were wrong

I'm a bit out of date but when we've bought in a chain, the deposit paid by the buyers at the bottom of the chain gets passed up the chain, so unless you're the buyers at the bottom you don't need to pay it. I think there's some sort of clause where everyone accepts it as enough deposit, even higher up the chain where it's less than 10% of their price. But this is a perfectly fair question for you to ask your solicitor. It's certainly not normal for people to have to find 10% of their house value as cash every time they move. Finding stamp duty is hard enough!

I think you have the choice of extending your mortgage to 52ish k, which is still a low mortgage with a good LTV, or porting your existing mortgage at 39.5k and paying the difference (12k) from your cash reserves. Or anything in between. I'm assuming you will pay the other expenses separately, with your cash. You could borrow more (increase the mortgage) to cover these too.

If you do increase your borrowing, the new money you're lent may sit in a different "pot" and have different terms to your existing debt, Eg different rate of interest and/or different finish date. It's up to you what product you choose. But they do need to be with the same provider.

@Murmurur thank you so much. That clears it up for me. It should all work out okay. Thank god for the stamp duty holiday. And the fact we're not at the bottom of the chain...!

You're all heroines for answering such a boring question so very late at night. Thank you.

I think there's some sort of clause where everyone accepts it as enough deposit, even higher up the chain where it's less than 10% of their price.
I do hope that's not the case @Murmurur. The cheapest property in the chain is a third of the most expensive. Thanks for the tip-off as I will ask my solicitor.

As you have equity, the 10% deposit on exchange becomes notional, if the seller accepts this.

So effectively, it is tied up in the house and you don't have to deposit this with your solicitor. However, if something goes wrong and the sale does not complete after exchange, then you are still legally obliged to pay the seller the 10% of the contracted sales price.

Do not worry about the deposit, this is standard practice. And of no issue if you exchange and complete on same day or with only a couple of days in between.

As you are porting your mortgage, you need to fund the gap of £12k. You either do this out of your cash at bank (£35k)or by increasing your mortgage to £52k.

You will pay your mortgage back so you have the price minus that. Then any fees. However, you have a massive deposit and you will be able to get a mortgage to cover the rest

NewHouseNewMe It is often the case as especially with high value houses the person lower down might not have say 100K in cash, it is likely to be tied up in the house. Remember this is just a penalty if something goes wrong between exchange and completion.

In my experience it’s easier to pay the deposit if you have it than to negotiate your buyer accepting a lesser deposit but I think I’d ask them to accept less in this case so you have some money for immediate expenses.

So pay £30k deposit leaving a £5k buffer. At completion you receive £338k. You pay £320k to your vendor. You have left the £5k you retained plus £18k from the proceeds of the sale. Your conveyancer may take their fees from this and transfer you the remainder. You’ll also need to pay for removals and estate agents so although the gap is £23k you’ll have little left in cash after all this...maybe £10k.

Are you moving into a very different house or location? It’s often better to spend on renovating and get a tangible return than to spend on moving which is expensive and leaves you with nothing to show for what you’ve spent, hence why most moves are an upsize, downsize or relocation. You originally borrowed £40k to renovate - does this no longer work for you?

In simple terms - the new house will be +12k. That will leave another 23k in the bank. No stamp duty but solicitor’s fees and moving costs and you’ll still have 15-20k left over.

Have you actually applied for a mortgage over the new property
Porting doesn't mean moving the current mortgage from one house to the other,mortgages are secured over particular properties
What porting means is that the new mortgage,up to the limit of the old mortgage, will be on the same rate and you don't have to pay an early repayment charge

Thanks @TW2013
I can't believe I never realised this before. So say there is a chain as follows:
House 1: £300K (deposit 30K)
House 2: £1M (deposit 100K)
House 3: £1.5M (deposit 150K)

Doesn't that mean the buyer of house 2 has to add 70K for deposit at exchange and the buyer of house 3 has to add £50k to their deposit in order for each to make up 10% of their purchase?

Thank you all, particularly @mysteryfairy, @JoJoSM2 and @NotBabiesForLong for spelling it out for me. I will get onto our mortgage lender on Monday to talk through porting it and what that involves. Maybe it would be a good idea to increase it a bit instead of relying on money in the bank at the moment.

We're relocating and upsizing so it's worth the investment. The renovations we did only added a few grand to the value of the property, really there isn't any scope to extend or add much else to it, so moving it is.

Thank you all.

Yes @NewHouseNewMe , unless the chain agrees a lower deposit is ok.

OP, you will get a deposit on the £338k, so the PP who says you only need to find 10% of £350k-£338k is correct.

You will get = from your buyer.

@NewHouseNewMe

I think there's some sort of clause where everyone accepts it as enough deposit, even higher up the chain where it's less than 10% of their price. I do hope that's not the case *@Murmurur*. The cheapest property in the chain is a third of the most expensive. Thanks for the tip-off as I will ask my solicitor.

It’s vanishingly rare for a house to fall through after exchange though. You won’t be short of money if the deposit is less, you’ll just get less ‘compensation’ if it all falls though.