How to move a mortgage when upsizing without triggering an early repayment charge

A couple who bought a one-bedroom flat in autumn 2022 and locked into a five-year fixed mortgage at 4.4 percent are weighing whether to pay an early repayment charge to switch lenders or to "port" their existing deal to a larger home.

Most fixed-rate mortgages include early repayment charges (ERCs) that apply when a borrower refinances or repays the loan before the agreed term. In the couple's case the outstanding balance is about £300,000 and the ERC is due to fall from 3 percent to 2 percent in the next month, implying a potential penalty of roughly £6,000 if they exit the deal now.

Mortgage industry specialists said borrowers can often avoid an ERC by porting their mortgage, effectively taking the existing deal to the onward purchase rather than breaking it. Porting typically allows the original rate and terms to remain on the portion of the loan that is transferred, while any additional borrowing needed for a more expensive property is placed on a new product from the lender's current range.

Nicholas Mendes, mortgage technical manager at John Charcol, said that in the example of a £300,000 loan at 4.4 percent over 25 years the monthly payment is around £1,650. If the couple were able to switch to a different five-year fix at 3.85 percent, the estimate drops to roughly £1,560 a month, a saving of about £90. But Mendes noted that paying a one-off ERC of around £6,000 could outweigh those monthly savings over a typical five-year period, so borrowers should compare scenarios rather than assume porting is always the cheapest route.

Aaron Strutt of broker Trinity Financial added that porting is treated as a fresh mortgage application. Lenders will carry out full affordability checks based on current income and circumstances, and they will require a valuation of the new property. A lender may decline the request if the borrower's financial situation has changed materially or if the property does not meet its lending criteria.

When additional borrowing is needed to fund an upsized purchase, the new funds are commonly placed on a separate product and the overall mortgage becomes a split deal: the ported amount remains on the original fixed rate while the top-up sits on a current-rate product. Strutt said lenders may offer different fixed or tracker rates for the top-up portion, and the borrower will normally make a single monthly payment that covers both products.

The sale of the existing property and completion of the onward purchase generally need to be coordinated. Lenders typically require simultaneous completion, and borrowers must not be in mortgage arrears to port a deal. Prospective movers should review their mortgage offer and the lender's terms and conditions on porting, and consult a broker to model the financial outcomes of porting versus paying an ERC and switching the entire balance to a new deal.

Industry advisers also recommend that buyers consider other transaction costs, including estate agent fees, conveyancing, and stamp duty, which affect the overall affordability of moving. Some lenders and brokers can show side-by-side comparisons to determine whether the upfront fee of switching outweighs the long-term interest savings from a new lower-rate product.

Remortgage timing can influence options. Borrowers whose fixed rates are nearing an end can usually reserve a new deal six to nine months in advance, often with no obligation to proceed. Arrangement fees for new products are sometimes added to the loan so that they are only charged when the mortgage completes, but doing so increases the amount of interest paid over the life of the loan and may not suit all borrowers.

Buy-to-let landlords face different considerations, particularly those on interest-only products, where changes in interest rates and lending criteria can lead to larger increases in monthly costs. The Financial Conduct Authority does not regulate most buy-to-let mortgages, and advisers said landlords should act early to assess options.

Lenders' appetite and loan-to-income rules can change as market conditions evolve, and several lenders have been prepared to offer higher loan sizes in recent months to enable buyers to purchase the properties they want. Mortgage brokers that operate across the market can show whether it makes financial sense to port an existing deal and take a top-up, or to pay an ERC and move the entire mortgage to a new lender.

The choice between porting and switching will depend on the size of the ERC, the remaining term and rate on the original deal, current market rates, the borrower’s updated income and outgoings, and the characteristics of the new property. Mortgage advisers recommended that borrowers obtain a full affordability assessment and valuation quote early in the process and to get independent broker comparisons before making a decision.