Beware the ‘portable’ mortgage trap

Homeowners who took out mortgages believing they were easily transferable when they moved home could find their deals aren’t as portable as they thought, as Melanie Wright discovered...

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Three years ago, when I signed up to my five-year fixed rate mortgage with First Direct, I checked that if we wanted to move house during the fixed rate period, we could transfer our mortgage to the new property.

I was told that the mortgage was fully portable and, reassured, thought no more about it, until we decided to move house this summer.

As soon as our home went under offer and we found a property to move to, I contacted First Direct to arrange the mortgage transfer.

Perhaps naively, and since we weren’t changing the mortgage amount or the term, I assumed it would simply be a question of us arranging a mortgage valuation on the new property, checking a few of our details, and assigning the mortgage to the new address.

Not so straightforward...

I was surprised therefore, to be told that we effectively had to re-apply for the mortgage before we could transport it over. This involved a lengthy application interview over the telephone, following which my husband and I were asked to send in our last three months’ bank statements, three years of my accounts as I am self-employed and proof of our identity.

Once this information was sent off, we were extensively questioned about activity on our bank account and were told that if we had had any unpaid items or had exceeded our authorised overdraft limit just once over the past three months, the application would have been refused.

There were also issues over my accounts. Since the start of the credit crunch, lenders have become much stricter about the amount you can borrow. Given the fact I have had two children in the past two years, my income has fallen, although not substantially, and, even though we have never missed a mortgage payment, we were then asked for a letter from my accountant confirming that my income will be higher this year.

Having crossed these hurdles, we thought we would be accepted without any further issues, only to receive a call from First Direct asking for evidence that my accountant was a member of a professional accountancy body, such as the Association of Certified Chartered Accountants or the Institute of Tax Consultants. 

After much chasing we managed to provide this proof of his membership but were amazed at the lengths we had to go to to move our mortgage across, especially as we had provided all this information when we initially took out the mortgage. 

Stricter lending criteria

David Hollingworth, of London & Country Mortgages, says we are far from being alone. Anyone wishing to move their current mortgage to a new property is likely to find that they are assessed against much stricter criteria than before the credit crunch.

He said:  “You will be asked far more questions than you might have been previously and there will be a lot more paper-chasing involved before you will be able to move your mortgage.

“What people have to remember is that, when it comes to transporting your current deal to a new property, you always have to meet the lender’s criteria at that particular point in time. So, while your circumstances might not have changed, their lending criteria might have got much stricter, which means you may no longer be eligible to move your mortgage across.

“When times are tough, as they are now, you could find that especially if you are upsizing and wanting to borrow more, your lender may not allow it.”

According to Mr Hollingworth, Northern Rock customers who took out mortgage deals they thought were portable are among those hardest hit.

Since the bank re-structured into two separate companies, the majority of mortgage accounts now fall under its Asset Management arm.

This means that while borrowers can still transfer their mortgages if they don’t need to borrow any additional money, they can’t if they require further funds to make the move.

What if your lender won’t let you move your mortgage over?

 If you find you can’t transport your mortgage to a new property, your only option is to stump up any early redemption penalties and to move lenders, or to stay put in your current property.

 

Mr Hollingworth said; “There is no way to side-step the fact that there are now much more rigorous under-writing procedures in place when it comes to getting a mortgage. If you are about to lock into a five-year fix, then you should really think long and hard about whether you might want to move during this term.

“Even if the deal you are considering is portable, you may be better off going for a two or three-year fix so that when you do move you can shop around and have a choice of deals so you aren’t restricted to the same lender.”

While, thankfully, we have finally had our mortgage approved, I will be following Mr Hollingworth’s advice and will give a lot more thought as to when our next move might be before we lock into another mortgage deal – even if it is ‘portable’.

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