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I have had a mortgage with my bank for ten years now, and want to move. I have phoned them a few times to ask about what I can afford, but each time the answer confuses me, and when I ask how they come to that figure they just say that's what the computer says. A buyer has agreed to purchase my property for 180 (valuation 170), there is 60 equity on the old mortgage and 100 left to pay. The bank say the most I can afford is a property worth 200. My gross salary is 25, and I have no debts or dependants.

I'd like to know firstly; how porting between old and new properties works (they're closing the old mortgage, and putting the equity and what's left from sale on deposit in the new?), secondly; how they have calculated my limit, and thirdly; if I can likely get a higher limit by transferring my mortgage to another bank?

  • What do you mean by "there is 60 equity on the mortgage"? Do you mean your original mortgage was 160 and you have paid 60 off already? – Vicky Jun 2 '16 at 7:23
  • Sorry, yes. The initial valuation was higher than the current, but the gap was paid for at the time to make up the difference. The equity now (market value minus outstanding debt on property/customer ownership?) on the old is 60. Property prices have gone down in the region I am selling from, and not recovered yet, which explains the numbers mismatch. – inappropriateCode Jun 2 '16 at 8:49
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    OK. I don't think it's relevant how much you paid originally for the house or how much of your mortgage you have already paid off. From the lender's perspective, they will assume you need new mortgage = purchase cost of new house - (sales value of old house - outstanding mortgage amount on old house). Then they will look at the new mortgage amount against your salary. – Vicky Jun 2 '16 at 13:34
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[Making my comment into an answer]

It's not relevant how much you originally paid for the house or how much of your mortgage you have already paid off.

To make it clear in the light of your comment: the equity you have in your old/current house is the current market value minus any outstanding mortgage debt.

From the lender's perspective, they will assume you need new mortgage = purchase cost of new house - equity in current house.

Then they will look at the new mortgage amount against your salary.

An old rule of thumb for the mortgage was a multiple of 3 times your annual salary, or 2.5 times the joint salary of a couple. Pre-credit-crunch when lenders were competing heavily for custom, this got stretched as far as 5 or 6 times salary.

However this has now been replaced by affordability checks so a better way of looking at it would be to say that your monthly mortgage payment should not be more than about 40% of your net monthly income (after any debt repayment etc. has been taken off). There are plenty of mortgage calculators out there that will take a mortgage amount, term and interest rate and tell you what the monthly repayment will be.

As always with this sort of thing - rather than blindly going with the maximum the bank will lend you, it is worth looking carefully at your own circumstances - what happens if you lose your job (how easily will you be able to get another one?), what happens if interest rates - which are very low and have been for a long time - rise, as they inevitably will.

The other thing to remember is that buying a house incurs expenses over and above the pure cost of the house itself - conveyancing fees, search fees, survey fees, stamp duty etc. Not to mention the stuff you always end up needing when you move house (bits of DIY, furniture, sundries which all add up to a ridiculous amount). So also make sure you have enough left over out of the equation to afford all that.

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