I want to get a fixed mortgage but what if I move before the term ends?

Is the mortgage market turbulence getting you down? Have you got a mortgage-related question you need answering? Email in and we’ll get one of our experts to reply. Nick Mendes, mortgage technical manager at John Charcol, has given his advice to a reader below. If you have a question for our experts, email us at money@inews.co.uk.

Question: I want to get a fixed mortgage – but what if I move before the term ends?

Answer: It’s great that you’re considering your mortgage options carefully. Opting for a fixed-rate mortgage offers the benefit of predictable monthly payments and protection from fluctuations in interest rates, providing financial stability over the term of the deal. However, it’s important to consider the potential implications if you need to move house before your fixed term ends.

Most fixed-rate mortgages in the UK are “portable”, meaning you can transfer your existing mortgage to a new property if you decide to move. This feature can be convenient because it allows you to maintain your current interest rate and potentially avoid early repayment charges (ERCs). However, porting your mortgage isn’t always as straightforward as it may seem, especially if you’re planning to move to a smaller property and require a reduced mortgage amount.

When downsizing, the primary concern arises if the new mortgage is smaller than your current one. While you can port the existing mortgage, you will need to repay the difference between the outstanding balance on your current loan and the new, smaller mortgage.

This partial repayment could trigger an ERC on the portion of the loan you are paying off, depending on the terms set by your lender. For example, if your current mortgage is £200,000 and your new home only requires a mortgage of £150,000, you would need to repay £50,000. While the £150,000 can typically be ported without penalty, the £50,000 repayment may attract an ERC.

Even though you are porting your mortgage, your lender will usually assess this as if it were a new application. They will reassess your financial circumstances, including income, credit score, and the suitability of the new property. This means you’ll need to meet the lender’s current affordability criteria, which may have changed since you took out your original mortgage.

Additionally, some lenders require that the sale of your existing property and the purchase of your new home complete simultaneously to avoid additional fees. However, certain lenders extend this period to up to six months and refund any early repayment charges paid if the onward purchase completes within this timeframe.

This flexibility allows you to retain your current mortgage product while giving you more time to finalise your new property purchase. If the transaction takes longer than this period, you will no longer be eligible for a refund of fees and will probably need to submit a new mortgage application based on current rates, losing the benefit of your previous rate.

Understanding the potential costs involved is crucial. ERCs are often calculated as a percentage of the amount being repaid early and tend to decrease as you get closer to the end of your fixed term.

It’s advisable to review your mortgage agreement carefully to understand how these charges are structured. In some cases, depending on current interest rates and the specific terms of your mortgage, it might even be more cost effective to remortgage entirely, despite the ERC, if it allows you to secure a better deal.

If you anticipate moving in the near future, it might be worth considering mortgage products that offer greater flexibility, with lower or no ERCs.

Consulting with a mortgage adviser can provide tailored advice based on your individual circumstances, helping you weigh the potential costs and benefits.

Best of luck with your plans, and I hope this helps you make an informed decision about your mortgage and future move.