Moving home can be an exciting milestone, but arranging the mortgage for your next property can be more complicated than buying your first home. Existing homeowners may have an outstanding mortgage, equity tied up in their current property, an early repayment charge, a sale to coordinate and a new mortgage to arrange.
For homeowners in Scotland, there are also specific aspects of the property-buying process to understand, including the Home Report, valuation and the timing of offers and completion.
Planning your mortgage before you become committed to a particular property can help you understand your realistic budget and reduce the possibility of financial surprises.
Start by Understanding Your Existing Mortgage
Before looking for your next home, establish exactly what is happening with your current mortgage.
Check your outstanding mortgage balance, interest rate, remaining term, product end date and any early repayment charge. If you currently have a fixed-rate mortgage, repaying it before the end of the fixed period may result in a charge.
Your lender can usually provide information about the amount required to repay the mortgage when your property is sold. This is important because the figure you have in mind for your outstanding balance may not be exactly the same as the final redemption amount.
You should also check whether your existing mortgage is portable.
Mortgage portability can allow a borrower to transfer an existing mortgage product to another property, subject to the lender’s criteria and approval of the new property. However, portability does not necessarily mean that the entire mortgage for your next home will automatically be accepted.
If the new property requires additional borrowing, the extra borrowing may be subject to different terms and a separate affordability assessment.
Understanding these details early gives you a clearer picture of how your existing mortgage will interact with your next purchase.
Calculate Your Available Equity
Homeowners often have more purchasing power than first-time buyers because they may have accumulated equity in their current property.
Equity is broadly the difference between the property’s value and the outstanding mortgage.
For example, if your home is worth £300,000 and you owe £180,000 on the mortgage, the gross equity is approximately £120,000.
However, this does not necessarily mean that you will have £120,000 available to put toward your next property.
You may have to account for legal costs, estate agency costs, mortgage redemption charges, moving expenses and other costs associated with selling and buying.
It is therefore sensible to work with a realistic estimate rather than assuming that every pound of theoretical equity will become part of your new deposit.
The final sale price may also differ from an initial valuation or asking price. Building some flexibility into your calculations can help if the eventual sale price is lower than expected.
Reassess Your Mortgage Affordability
Your previous mortgage payment does not necessarily tell you how much you can borrow today.
Your income, expenditure, credit commitments and household circumstances may have changed since your current mortgage was arranged. Mortgage interest rates and lender affordability criteria may also be different.
For example, you may now have a car finance agreement, personal loan, credit-card balance or childcare costs that were not present when you purchased your existing property.
Conversely, your income may have increased significantly.
A fresh affordability assessment can help establish a realistic borrowing range before you start making offers.
It is important to remember that the maximum amount a lender is prepared to offer is not necessarily the amount you need to borrow.
A homeowner may qualify for a larger mortgage but decide to purchase a less expensive property so that there is more room in the household budget for savings, holidays, maintenance, childcare or other financial priorities.
Your mortgage should fit your life rather than simply determine the maximum property price you can afford.
Understand the Scottish Property Process
Anyone moving home in Scotland should understand how the local property process works.
Scottish properties are commonly marketed with a Home Report containing important information about the property, including a survey and valuation, property questionnaire and energy report.
The Home Report can provide useful information before you make an offer. Read the available documentation carefully and consider whether the property has any issues that could result in additional expenditure.
The valuation can also be relevant to mortgage planning.
Although the Home Report provides useful information, a mortgage lender may carry out its own valuation or property assessment. Ultimately, the lender decides whether the property is acceptable security for the mortgage and how much it is prepared to lend against it.
If you are selling one property while purchasing another, timing becomes especially important.
Your solicitor, estate agent and mortgage adviser may all need to coordinate information about the sale, purchase, deposit and mortgage.
Starting this process early can make the transaction easier to manage.
Decide How Much of Your Equity to Use as a Deposit
A homeowner with substantial equity may be tempted to use as much of it as possible as a deposit.
A larger deposit can reduce the loan-to-value ratio, which may provide access to different mortgage options.
However, using every available pound as a deposit is not necessarily the best approach.
Moving house can involve significant expenses. You may need money for removals, furniture, appliances, repairs, decorating or other unexpected costs.
For this reason, it is worth considering several different deposit scenarios.
For example, you could compare the financial impact of using £50,000, £70,000 or £90,000 as a deposit. Consider not only the monthly mortgage payment but also how much cash would remain after completion.
A slightly smaller deposit may sometimes be preferable if it leaves you with a meaningful emergency reserve.
Think About the Timing of Your Mortgage
Mortgage planning should start before your property search becomes urgent.
If your current mortgage is approaching the end of its fixed or discounted period, understand what happens if your sale and purchase take longer than expected.
Property transactions can involve delays. A buyer may have difficulty selling their own property, a legal issue may arise, a mortgage application may require additional documentation or the proposed completion date may change.
If your current mortgage deal ends before your move is completed, you should understand what rate may apply afterwards and whether there are options for managing the timing.
Keeping your mortgage adviser informed about significant changes can help ensure that the mortgage remains based on accurate information.
If your income changes, your sale price changes or the purchase price increases, the mortgage calculation may need to be reviewed.
Consider Whether You Need a Different Mortgage
Moving home creates an opportunity to reassess your mortgage rather than simply replacing your existing arrangement.
You may want a different fixed-rate period, a different mortgage term or greater flexibility for overpayments.
Your future plans should influence the features you consider.
For example, if you expect to move again within a few years, early repayment charges and portability may be particularly important.
If you expect to remain in the property for a long time, you may place greater emphasis on the initial interest rate, product fees and overall cost.
Avoid comparing mortgages purely by headline interest rate.
A mortgage with a slightly lower rate but a significant product fee may not necessarily be cheaper than another mortgage with a higher rate and lower fees.
Consider the overall cost and the features that matter to your circumstances.
Budget for More Than the Mortgage
A new mortgage payment is only one part of the cost of owning a property.
If you are moving into a larger home, your energy bills, insurance, council tax and maintenance costs may increase.
Older properties may also require more maintenance or renovation.
The cost of moving itself should be included in your calculations. Depending on your circumstances, you may need to budget for solicitor costs, removals, storage, furnishings, repairs and other expenses.
Homeowners should also consider any applicable property taxes and obtain current professional advice where the tax position is relevant.
Creating a complete moving budget gives you a more realistic picture of affordability.
Prepare for Different Outcomes
A sensible moving plan should consider what happens if the transaction does not go exactly as expected.
What if your current property sells for less than anticipated?
What if the new property costs more than expected?
What if completion dates change?
What if you need to carry two property-related costs temporarily?
These situations do not necessarily mean that a move cannot proceed, but they can create financial pressure if there is no contingency.
A cash reserve can provide useful flexibility.
You should also avoid basing your new purchase on an overly optimistic estimate of the equity you will release from your current home.
The more conservative your calculations, the easier it may be to adjust if circumstances change.
Get Mortgage Advice Before Making a Commitment
A home move combines several financial decisions.
You need to understand your existing mortgage, available equity, borrowing capacity, deposit, new property price and ongoing household budget.
A mortgage adviser can help you understand how these elements fit together and compare mortgage options based on your circumstances.
Prestige Mortgage Solutions Ltd provides mortgage advice for homeowners in Glasgow, East Kilbride and across Scotland.
Professional mortgage advice can be particularly useful if your circumstances are more complex, such as being self-employed, having multiple income sources, planning a larger purchase or needing to consider an existing mortgage with early repayment charges.
The objective is not simply to find the biggest mortgage available. It is to understand the options and make an informed decision about the mortgage that fits your circumstances.
Whether you are upsizing, downsizing, relocating or simply looking for a different property, planning the mortgage before making an offer can provide greater clarity and confidence.
Frequently Asked Questions
Can I transfer my existing mortgage when I move?
Some mortgages are portable, but the lender will normally assess the new property and your financial circumstances. If you need additional borrowing, that additional amount may be arranged under different terms.
Should I get an agreement in principle before making an offer?
An agreement in principle can give you an indication of your potential borrowing range. However, it is not a final mortgage offer and further checks will normally be required before completion.
How much equity should I use as my deposit?
There is no universal answer. A larger deposit may reduce your loan-to-value ratio, but retaining an emergency fund can also be important. Compare different deposit levels and consider the cash you will have remaining after completion.
What happens if my current mortgage has an early repayment charge?
The charge depends on the terms of your mortgage. Ask your lender for the relevant details and an accurate redemption figure before making plans.
Can a mortgage adviser help if my circumstances have changed?
Yes. If your income, employment, borrowing or household circumstances have changed, a mortgage adviser can explain how these factors may affect your available mortgage options.