Porting your mortgage
Many clients who are buying and selling at the same time "port" their existing mortgage over to their new property. The concept of "porting" is essentially a financial product because, behind the scenes, the mechanism is that the current mortgage is repaid thus allowing the property to be sold and a new mortgage is placed on the new property allowing that property to be purchased.
Jargon Buster: in this note an Early Repayment Charge is a charge usually imposed by lenders in exchange for providing a beneficial rate on a mortgage or remortgage. As an example, in exchange for providing a beneficial rate the lender may state that if the loan is repaid within three years then a charge will be made by the lender equivalent to 1% of the loan. "Porting" means in the circumstances described above transferring the financial product from one property to another property (from the old house to the new house) which may avoid all or part of the Early Repayment Charge.
Lenders vary in how they deal with "Porting" but recent experience has dictated that this can be a problematic area where the involvement of the client is vital. It is important to explain why this is the case. When McVey and Murricane, or indeed any solicitor, makes contact with a lender to indicate that a client is selling the property over which the lender currently has a mortgage, a process is entered into called "redemption". This involves the lender providing a figure which they regard as the amount sufficient for them to discharge their mortgage over the property being sold. McVey and Murricane share that figure with the client but generally it will include any Early Repayment Charge which is due to the lender.
Separately, if the client is purchasing a new property with the benefit of a mortgage from the same lender, that new mortgage will generally include terms that refer to it being a "port" of the existing mortgage.
An area prone to error
So, for most lenders "porting" a mortgage actually represents the manual combination of two events; the redemption of the old mortgage where there is an Early Repayment Charge and the offer of a new mortgage which makes reference to there being a continuity with the old mortgage.
Modern conveyancing moves at a very rapid pace and transactions are much shorter than previously. Somewhat perversely there is, at the same time, far more regulation and hurdles to overcome in that short period making conveyancing a challenging process and one where many aspects tend to occur very near to the date of entry.
Our recent experience is that the "porting" process then causes problems. In a perfect world McVey and Murricane would be paying to the lender the amount which they have requested less the Early Repayment Charge but the lesser amount cannot be paid to the lender without the express approval of the lender. This often comes at the last minute or not at all. Because, McVey and Murricane are personally responsible to the lender to repay the correct amount, it can be easily understood that this creates difficult circumstances.
Most of all, the aim of McVey and Murricane, is to enable its clients to control as many aspects of the transaction as possible. This means a reduction in the frustration felt by clients by the natural tendency of matters to be dealt with at the last minute in conveyancing.
Because lenders are not consistent in their approach to these "ported" mortgages it makes it more important that McVey and Murricane follow a consistent approach that can be universally applied ensuring that their client can assist in achieving the right result for them.
Step 1: McVey and Murricane will provide the client with a copy of the "redemption figure" from the lender in respect of the existing sale. McVey and Murricane must abide by this redemption figure unless they receive written communication from the lender confirming that a lesser figure (usually the figure excluding the Early Repayment Charge) can be paid.
Step 2: when a client receives that redemption figure and believes that, because the client is porting the mortgage, the amount to be repaid to the lender is less, then the client should take the following action:
(a) email the conveyancer at McVey and Murricane to indicate that the client is porting the mortgage and that the client will deal with step (b) below.
(b) contact the broker acting for the client or the lender directly asking them to send a letter or communication to McVey and Murricane confirming that the lender will accept the reduced amount in redemption of the loan over the property being sold, the reduction being the removal of the Early Repayment Charge.
Step 3: provided that McVey and Murricane receive the letter or communication from the lender prior to the date of sale of the existing property, McVey and Murricane will pay the lender the lesser amount (i.e. the redemption figure less the Early Repayment Charge). If McVey and Murricane do not receive the letter or communication from the lender prior to the date of sale of the existing property then McVey and Murricane are bound legally to pay to the lender the full amount of the redemption figure including the Early Repayment Charge. It would then be down to the client to reclaim the relevant amount from the lender.
Step 4: McVey and Murricane will provide accounting details prior to the transaction on the basis of the then known instructions from the lender. If McVey and Murricane do not have the letter or communication from the lender the amount shown in the accounting communications for the loan redemption will be the gross amount required to redeem the existing mortgage. In other words the figure will include the Early Repayment Charge.
Step 5: the reason why all of this information is provided is that, despite the very best efforts of both the lenders and McVey and Murricane, sometimes this process is less than smooth. It often depends upon different ways that the lender deals with "porting" mortgages or other matters which may be personal to the client. The problem is that the buck stops with McVey and Murricane because they provide undertakings to the solicitors who are acting for the purchaser of the property being sold by the client that there will be a clear title. In simple terms this means that when the lender is paid they will release their security or mortgage over the property. If there is an argument by the lender over whether the Early Repayment Charge requires to be paid or not ultimately McVey and Murricane are "on the line".
In summary, all of the above explains why, in the absence of a letter or communication from the lender that the amount (required by them to redeem the mortgage over the property being sold) should not include the Early Repayment Charge then McVey and Murricane will require to pay the full amount including the Early Repayment Charge. The mention within the new offer of loan that the case is being "ported" is insufficient; McVey and Murricane require a specific approval or agreement by the lender to the lower amount being paid to them from the sale of property.
Experience has shown that McVey and Murricane chasing this type of communication from the lender is often unsuccessful for many reasons. Accordingly, the only safe way in dealing with matters is to pay the full amount to the lender who has a mortgage over the sale property, unless that lender provides a written confirmation that the lesser sum is acceptable. Often, the only way that this can be achieved with certainty is for the client to ensure that this document is with McVey and Murricane.
Important Point: a copy of a letter or communication sent by the lender to the client is insufficient. The communication by the lender must be sent directly to McVey and Murricane. This is necessary as part of the fraud control by which solicitors in modern times require to abide.