Mortgage holders face porting problems

21st June 2011

"Porting" is transferring your current mortgage rate and terms to a new property while not borrowing any more money.

If they can't port borrowers have to pay an exit penalty to switch to a new mortgage. Penalties can be up to 8% of the outstanding balance, so £8,000 on a £100,000 loan.

In theory, most mortgage deals are portable if you're not asking for more money. If you need to borrow more, you will typically have to arrange a further advance, at current interest rates.

However, in practice mortgage lenders are using stricter lending criteria to block some homeowners' attempts to transfer their home loan.

These borrowers are forced to pay thousands of pounds in exit penalties to secure a new deal on their next home, or else stay trapped in their current property.

The problem is that lenders are now using stricter lending criteria than before the credit crunch. When borrowers ask to port their mortgage a full affordability check is carried out. In many cases homeowners' circumstances will have changed since they took out the original loan.

Borrowers with children are often hit hardest. In some cases the mother will be on maternity leave or working part-time and this will affect the families' income. Meanwhile the extra costs of looking after a child mean they could fail lenders' affordability tests.

The Sunday Times featured the case of Merryn Gamba, a 35-year-old self-employed opera singer. She tried to port her loan when she moved house, but was turned down by Nationwide building society despite not asking to borrow any extra money.

Gamba and her husband have a 17-month-old daughter and believe this change in circumstances is the reason Nationwide turned down their porting request to move their mortgage from a two-bed flat to a three-bedroom house.

Figures from a recent report for the Council of Mortgage Lenders (CML), the trade body, suggest that 51% of homeowners each year who want to move will not be able to because of tighter rules.

The report, by Policis, said almost 100,000 homeowners a year could be blocked from moving either by porting their loans or remortgaging. 173,000 may not be able to borrow the same size of home loan, forcing them to downsize.

Different lenders have different rules on porting. Bradford & Bingley and Northern Rock's don't allow customers to port if they are taking a further advance, in effect forcing them to trade down.

Halifax allows customers to port a short-term fixed or variable deal, but borrowers can't keep its standard variable rate, currently an attractive 3.5%.

As well as becoming stricter about porting, lenders have also clamped down on self-certification mortgages and interest-only loans.

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