Is it better to have no existing mortgage when moving house?
Discussion
Evening All,
Appreciate some thoughts on this, as I think I’m over thinking it!
I currently have some savings tied between cash, premium bonds and a s&s isa. None of them are doing particularly well, and I took a bath on one particular share (my own fault) which means that it would take several years to recover. I have enough to pay my existing mortgage off (I have 17 years left, but the mortgage is small) and would leave an amount for a 10% deposit on our next place (assumes we don’t try and push it too far in terms of size/mortgage)
My mortgage deal has expired so I’m on a 4.5% rate (2 months in so far) and was hesitant to sign up for another 2 year fixed because of early repayment charges etc, although I think I’ve been stupid on that point because of the ability to port mortgages etc.
Would it be wise to pay it off now? Or pay a significant chunk off and leave a small amount (less than £20k)? My thought process is that it would put us in a better position when buying as we would effectively not be in a chain, so no immediate requirement to sell our current house (although I do want to sell, I don’t particularly want to become a landlord) I would also still have the option to sell if we wanted to push ourselves on the next house.
Any thoughts?
Appreciate some thoughts on this, as I think I’m over thinking it!
I currently have some savings tied between cash, premium bonds and a s&s isa. None of them are doing particularly well, and I took a bath on one particular share (my own fault) which means that it would take several years to recover. I have enough to pay my existing mortgage off (I have 17 years left, but the mortgage is small) and would leave an amount for a 10% deposit on our next place (assumes we don’t try and push it too far in terms of size/mortgage)
My mortgage deal has expired so I’m on a 4.5% rate (2 months in so far) and was hesitant to sign up for another 2 year fixed because of early repayment charges etc, although I think I’ve been stupid on that point because of the ability to port mortgages etc.
Would it be wise to pay it off now? Or pay a significant chunk off and leave a small amount (less than £20k)? My thought process is that it would put us in a better position when buying as we would effectively not be in a chain, so no immediate requirement to sell our current house (although I do want to sell, I don’t particularly want to become a landlord) I would also still have the option to sell if we wanted to push ourselves on the next house.
Any thoughts?
I doubt any of your investments are returning more than 4.5% on a tax and risk adjusted basis so on that logic alone I would be tempted to pay it off.
Having said that, if you usually use your entire £20/£40k annual ISA allowance I would pause before withdrawing funds from it as you won’t be able to catch up in future years.
The chain point is a bit of a red herring - either you can afford the next property without selling your current or you can’t. If you don’t pay off the old mortgage you can put the cash in the new property as equity instead.
Also, try and avoid the sunk cost fallacy - what you paid for the shares has not bearing over whether they are a good investment at the market price today
Having said that, if you usually use your entire £20/£40k annual ISA allowance I would pause before withdrawing funds from it as you won’t be able to catch up in future years.
The chain point is a bit of a red herring - either you can afford the next property without selling your current or you can’t. If you don’t pay off the old mortgage you can put the cash in the new property as equity instead.
Also, try and avoid the sunk cost fallacy - what you paid for the shares has not bearing over whether they are a good investment at the market price today
You may find it less straightforward to get a mortgage on a new home without first selling your current place, even if the current place will have no mortgage. A lender wont consider it your primary residence, and will also want more deposit than the 10% you'd have. You then (from memory) have to pay additional second home tax, though can claim it back if you sell your current house within 18 months..... I'm a bit hazy on the current detail, but worth looking in to.
Paying the mortgage off your current place also isn't going to make you much more appealing as a buyer. You still need a mortgage on the new place, so arent a cash buyer which is what everyone is looking for ideally.
There may be a benefit to clearing your current mortgage off in terms of saving on the mortgage interest, as 4.55% is a pretty chunk rate. Or, you could remortgage now on the expectation of porting it on to the next property, or choose a mortgage with no early redemption charge (ERC). You'd need to do the sums on whether it's worth it - depending on what your specific situation is, and your timeline for moving.
You're paying way over the odds for your current mortgage, but setting this aside, it's good to have ready access to cash (savings), even if it isn't achieving much at the moment.
Paying the mortgage off your current place also isn't going to make you much more appealing as a buyer. You still need a mortgage on the new place, so arent a cash buyer which is what everyone is looking for ideally.
There may be a benefit to clearing your current mortgage off in terms of saving on the mortgage interest, as 4.55% is a pretty chunk rate. Or, you could remortgage now on the expectation of porting it on to the next property, or choose a mortgage with no early redemption charge (ERC). You'd need to do the sums on whether it's worth it - depending on what your specific situation is, and your timeline for moving.
You're paying way over the odds for your current mortgage, but setting this aside, it's good to have ready access to cash (savings), even if it isn't achieving much at the moment.
As is so often said on here on the subject of mortgages speak to Sarnie.
He recently secured a mortgage that allowed me to buy my new place whilst I still held a mortgage on my old place.
Like you I wanted to be "chain free" and I wanted to get in the new house quickly without the hassle of having to sell my place first.
Neither property went onto a buy-to-let mortgage and both properties are on normal residential mortgages.
He recently secured a mortgage that allowed me to buy my new place whilst I still held a mortgage on my old place.
Like you I wanted to be "chain free" and I wanted to get in the new house quickly without the hassle of having to sell my place first.
Neither property went onto a buy-to-let mortgage and both properties are on normal residential mortgages.
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