How to Sell a House with a Mortgage: A Step-by-Step Guide

Having a mortgage doesn’t lock you to a property forever. In fact, many homeowners choose to sell their homes while they still have a substantial amount left to repay on their mortgage.

What matters is understanding that the money from the sale must first be used to repay your outstanding mortgage balance, whether any early repayment charges will apply and how much money you will have left once these costs are settled.

In this article, we explain how to sell a house with a mortgage, what happens to your mortgage after a sale and the key steps you should take when selling your home. Let’s begin.

Can You Sell a House with a Mortgage?

It is common for homeowners to sell their property before their mortgage is fully repaid. You might be moving to a larger home, relocating for work, downsizing or on the lookout for a property that better matches your needs.

Whatever the reason for your sale, your outstanding mortgage will need to be repaid before ownership of the property can pass to the buyer. Generally speaking, the money from the sale is usually used to cover this balance, rather than you having to repay the mortgage beforehand.

For this reason, when it comes time to sell, your solicitor will need to arrange for the outstanding mortgage balance to be repaid from the money received from the buyer as part of the sale process.

The exception to this is if your property is in negative equity. Negative equity simply means that your home is now worth less than the amount you owe on your mortgage.

In this situation, the sale proceeds would not be enough to repay your mortgage in full and you would need to cover the shortfall yourself or agree with your lender how it will be repaid before the sale can complete.

How Does Selling a House with a Mortgage Work?

The selling process of a property is almost identical whether you have a mortgage or not. The main difference comes when the proceeds from your sale are used to pay off your outstanding mortgage balance.

Below we have outlined the step-by-step process on how selling a house with a mortgage works in practice:

1. Request a Mortgage Redemption Statement

The first step to selling your house with a mortgage is to ask your mortgage lender for a redemption statement. This document will show you exactly how much you would need to pay to clear your mortgage, including the outstanding balance and any early repayment charges or other applicable fees.

Having these figures early on will help you calculate how much money you could have left from the sale, once your mortgage has been repaid.

2. Arrange a Property Valuation

Next, ask an estate agent to value your property based on its condition, location and the local market. Comparing the expected sale price against your mortgage balance will give you a clearer insight into your financial position and how much money you could have left after your mortgage is repaid.

3. Put Your Property on the Market

Once you have decided on a suitable asking price and have chosen an estate agent, your property can then be listed for sale. At this stage, you will usually need to agree to the estate agent’s fees and prepare the property listing.

4. Conduct Viewings

Potential buyers should now be able to arrange viewings of your property. You can either conduct these yourself or ask your estate agent to handle them on your behalf. It is common practice for estate agents to conduct viewings, depending on the service you have chosen.

5. Negotiate Offers

If a viewer is interested and you receive an offer, you do not have to accept it immediately. It’s important to understand all of your options; you can accept, reject or negotiate with the buyer based on the amount offered and their position.

6. Accept an Offer

Once you are happy with an offer and accept it, the legal work can begin. In England and Wales, accepting an offer does not make the sale legally binding. The sale only becomes legally binding after you exchange contracts.

7. Complete the Sale and Repay Your Mortgage

Your solicitor will obtain an up-to-date redemption figure from your lender and handle the legal work required for the sale. When the transaction completes, the mortgage is repaid from the sale proceeds, allowing ownership of the property to pass to the buyer.

Any money left after repaying the mortgage and relevant selling costs can then be paid to you or, if you are buying another home at the same time, put towards your onward purchase.

What Happens to Your Mortgage When You Sell Your House?

If you are selling your property without planning on buying another home, then the process of selling is relatively simple. As we outlined in the step-by-step section above, your mortgage is repaid from the sale price, along with any applicable fees, and the remaining money belongs to you. This process of repaying and closing your existing mortgage is known as mortgage redemption when selling.

Let’s take a look at how this works in practice:

As we can see, selling the property for £300,000 provides enough money to repay the £180,000 mortgage, alongside the £3,600 early repayment charge and £5,000 in other selling costs.

Other selling costs would typically include estate agent commission, conveyancing solicitor fees, and an EPC. These are usually deducted directly from your sale proceeds by your solicitor on completion day.

This would then leave the homeowner with £111,400 remaining from the sale once these amounts have been paid.

Ultimately, the amount of money you receive will always depend on your final sale price, outstanding mortgage balance and any additional fees. However, knowing these figures before you sell can give you a much clearer idea of how much money you are likely to walk away with once the sale is complete.

What Happens if You’re Selling and Buying Another House?

The process of selling your house can change slightly when you are also planning on buying another property. Before deciding how much you can spend on your next home, you will need to find out how much money you are likely to have left after repaying your existing mortgage and selling costs.

Crucially, your existing mortgage does not automatically transfer to the property you are buying.

Instead, you will need to submit a new mortgage application for your new home. As this will be a new mortgage, the lender will need to assess your current income, affordability, credit history and the property itself before approving the mortgage.

You can apply for this new mortgage in much the same way as you did when buying your previous home.

Let’s look at another example in practice, focusing on how the figures can change when you’re selling your current home and buying another property:

As the table shows, the £111,400 remaining from the sale can be put towards your £400,000 purchase. This would mean that you would still require a mortgage of £288,600 to cover the remaining purchase price

However, making a new mortgage application does not necessarily mean that you have to choose a new mortgage product. If your existing mortgage is portable and you want to stay with your current lender, you may be able to keep your current product when moving to the new property. This is known as porting a mortgage.

A key point to mention here is that, depending on your lender’s terms, successfully porting your mortgage can sometimes help homeowners avoid early repayment charges.

If you need the money from your existing home to fund your new purchase, the timing of both transactions will also need to line up. Your solicitor will usually arrange for your sale and onward purchase to complete on the same day, allowing the money from your sale to be put towards your new home.

In the case that you are part of a property chain, your sale and purchase may also depend on other buyers and sellers being ready to complete their transactions. A delay elsewhere in the chain can therefore affect when your own sale and purchase complete, potentially changing your moving date.

Can You Sell During a Fixed-Rate Mortgage?

If you are selling your house whilst in a fixed-rate mortgage, it is important to check whether an early repayment charge (ERC) applies to your current deal.

An ERC is a fee that your lender can charge when you repay all or part of your mortgage before the agreed deal period ends. Ultimately, as your existing mortgage will need to be repaid when you sell, doing so before the end of your fixed-rate period may trigger an ERC for paying off your mortgage early.

The amount you could pay will depend on your mortgage product and how far you are into the fixed-rate period. For example, a five-year fixed mortgage could have a 5% ERC in the first year, before the ERC percentage reduces in each subsequent year.

Here is how the cost of ERCs can change based on an outstanding mortgage balance of £180,000:

Please note that the figures are illustrative only and do not represent the ERC structure of every fixed-rate mortgage.

As the table shows, the percentage charged can make a significant difference to the cost of selling.

A two-year fixed mortgage may have a shorter ERC period and could, for example, charge 2% in the first year before falling to 1% in the second.

With that said, ERC structures can vary significantly between mortgage products and lenders, and so it’s important to always check the terms of your individual mortgage to find the exact charges that may apply.

Can You Transfer Your Mortgage to a New Property?

The process of transferring a mortgage to a new property is known as porting a mortgage. Despite the name, your existing mortgage does not actually just move from one property to another. Instead, the original mortgage on the home you are selling is repaid, while your existing mortgage product is then carried across to a new mortgage with the same lender.

Porting can be very useful for homeowners who are moving home during a fixed-rate deal with an interest rate that they want to keep. In addition, porting may also help you avoid paying an early repayment charge that would otherwise apply when ending your current mortgage early.

Crucially, not every mortgage product is portable and different conditions can apply.

It is important to check your original mortgage offer or speak to your lender to confirm whether porting is available on your current deal.

Some mortgage products may also have restrictions based on the type of property or scheme that they were originally designed for. As an example, a mortgage product that was designed for shared ownership may not be portable to a property outside of this scheme.

Even if your mortgage is portable, this does not mean that approval is guaranteed.

As you are applying for a mortgage on a new property, your lender will treat the move as a new application and reassess your income, affordability, credit history and the property you want to buy against its current lending criteria.

Should your new home require you to borrow more, you may still be able to port your existing mortgage product and apply for additional borrowing from the same lender. However, any additional borrowing may need to be taken on a different mortgage product and interest rate, meaning you could have two parts to your mortgage with different deal periods.

If you are unsure whether your mortgage can be ported, you can check your original mortgage offer or contact your mortgage broker or lender directly. They should be able to confirm whether porting is available, any conditions you will need to meet and whether you are likely to need additional borrowing for your new property.

What Happens if Your House Is Worth Less Than Your Mortgage?

Being in negative equity can make selling a property more complex because the money you receive from the sale will not be enough to repay your outstanding mortgage in full.

For example, if your property sells for less than your outstanding mortgage balance, the figures could look something like this:

• Outstanding mortgage balance: £200,000
• Property sale price: £190,000
• Mortgage shortfall: £10,000

In this example, the £190,000 received from the sale would not be enough to repay the £200,000 mortgage, leaving you with a £10,000 shortfall.

This means that you would need to be able to cover the remaining £10,000, whether through savings, other available funds or an arrangement agreed directly with your lender. In practice, you would also need to account for any additional fees or charges associated with selling the property.

If you cannot cover the shortfall yourself, it is important to contact your mortgage lender before agreeing to the sale. Because the sale proceeds will not repay the mortgage in full, your lender will need to agree to how the remaining balance will be paid before the sale can complete.

How a Mortgage Broker Simplifies Moving Home

Selling a house with a mortgage can include several moving parts, especially if you’re planning on moving into a new home. You will need to consider what happens to your existing mortgage, how much money you will have available from the sale and how you will finance your next property.

This is where working with a trusted mortgage broker can help simplify your home move and provide real value. Before you move, a broker can help assess your existing mortgage and answer the important questions, including:

• How much could you borrow for your new home?
• Could you port your existing mortgage product?
• Would a new mortgage deal be more suitable?
• Will you need to pay an early repayment charge?
• How much could your new mortgage cost each month?

At Boon Brokers, our expert mortgage advisers can compare products from over 90 lenders alongside the option of porting your existing mortgage deal. We can calculate your borrowing potential, compare the mortgage options available to you and help find a suitable mortgage for your new property.

Our mortgage advice is completely free. You will be assigned a dedicated Boon Brokers adviser who can compare your options, arrange your mortgage application and support you through to completion.