My daughter has split with her partner, three years into a 10 year fixed mortgage with Halifax. I have several questions about her situation.
1) Can she port the remaining mortgage on her own to a new property?
2) If so, is there a time limit between selling the previous home and purchasing the new property?
2) Would porting the mortgage prevent an early repayment charge?
3) If necessary, my husband and I will contribute to the new mortgage but don’t want to appear on the ownership deeds of her new property (thus attracting capital gains for us as homeowners) – is this possible?
Any help or guidance you can offer will be appreciated. W.S.
Mortgage help: Our weekly Navigate the Mortgage Maze column sees broker David Hollingworth answer your questions
David Hollingworth replies: It’s always a difficult time when a relationship breaks down, and the property will often be a central part of the untangling of financial affairs.
It makes sense to think about any changes on the horizon when considering how long to lock into a mortgage, as early repayment charges can be substantial.
But that is impossible when there are unforeseen, and unforeseeable, circumstances at the heart of the need to change the mortgage – as your daughter has sadly found out.
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Avoiding an early repayment charge
Firstly, it is important to check the specific terms of your daughter’s mortgage to understand the early repayment charges.
The current crop of Halifax ten-year fixed rates would carry an ERC of 6 per cent in the first five years, before dropping down by one percentage point each year after that to just 1 per cent in the final year.
Porting the mortgage is the term used when an existing mortgage is taken to a new property. That has two potential benefits to a borrower moving home during an ERC period.
Firstly, it could avoid the need for some or all of the penalty to be paid.
Secondly it may be desirable to keep the current deal intact, as it would have been taken at a time when interest rates were lower than they are today.
> How to remortgage your home: A guide to finding the best deal
Charges: Halifax’s ten year fixed rates carry an ERC of 6% in the first five years, before dropping down by one percentage point each year to just 1% in the final year
Halifax products are portable, and so it could be possible for your daughter to avoid the ERC if the mortgage is taken to a new property.
Although some lenders can allow the mortgage to be split and part taken by each of the two joint borrowers, this wouldn’t be an option with Halifax.
But assuming her ex-partner agreed not to port the mortgage themselves, your daughter could take it to her new home.
How long does she have to do this?
In order to port a Halifax mortgage and keep the product intact, the sale and purchase of the new home need to be simultaneous.
That will allow the product and rate to remain in place and avoid any penalty being incurred.
If the sale and purchase cannot be completed at the same time, then lenders will usually charge the ERC on redemption, but often offer a concession within a certain timeframe, recognising the practical difficulties of aligning the timing.
Many lenders will refund the penalty that is incurred when the mortgage is repaid, if the new property is purchased within a specified period of time.
That could allow a borrower to sell the current home and then later buy a new property, typically within three months, to have the ERC refunded.
Some lenders will still allow the product rate to be ported within that three-month period whilst others, including Halifax, may offer a refund on the ERC but require a new product to be taken from the current range.
This may mean your daughter would have to take on the mortgage at today’s rates.
If the amount of the mortgage taken to the new home is less than the current outstanding balance, then there could be a partial repayment charge incurred or refunded.
What are the rules for porting a mortgage?
A crucial part of the porting process, whether simultaneous or not, will be the need for the lender’s criteria to continue to be met.
The new property will have to be acceptable to the lender, but even more importantly there will be a need for the mortgage to remain affordable for your daughter.
If she can support the mortgage based on her own income, it should allow the mortgage to be in her name only, assuming that the ex partner will be removed from the mortgage.
Some lenders can enable parents to be included on the mortgage to aid affordability, but without being named on the title deeds of the property.
This is often referred to as a ‘joint borrower, sole proprietor’ mortgage.
This avoids the concern around capital gains tax, as the property isn’t the parents’ main residence.
It can also help avoid paying the additional rate of stamp duty in some circumstances, but unfortunately this arrangement isn’t available through all lenders and Halifax does not offer it.
If you do need to be a part-owner, you should take legal as well as mortgage advice on the options.
You could consider structuring the ownership as tenants in common, with the bulk of the property owned by your daughter.
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