Mortgage porting: ‘Sold as a benefit, yet sometimes, it’s the opposite’ – analysis

Mortgage porting: ‘Sold as a benefit, yet sometimes, it’s the opposite’ – analysis

 

Borrowers typically switch their mortgage to a new property if they are moving before their fixed rate period ends in an effort to avoid brutal Early Repayment Charges (ERC).

More clients now have the added incentive to stay on a mortgage deal because products available today are more expensive than one or two years ago.

Chris Sykes, technical director at Private Finance said they have seen an increase in porting.

He added: “Previously when someone had a two-year fixed rate at say two per cent and we could get them a new two-year fixed rate at 1.5 per cent, then the ERC they would have to pay was not too much of a hardship.

“However now the interest rates are higher, and people are faced with losing their existing lower rate and having to pay an ERC simultaneously, unless they are porting the mortgage if they want to move property.”

The problem with the process is that borrowers often have to take a second mortgage for additional borrowing to carry out their onward purchase.

At some stage, there will likely be a period on the lender’s Standard Variable Rate (SVR) or pay an ERC to sync products or else borrowers are trapped with the same lender.

Lewis Shaw, founder at Shaw Financial Services, has also seen a “significant uptick” in porting cases.

He said they are “painful to deal with” with compliance for the deals increasing “by the day”.

Shaw added: “In all honesty, I wish lenders would get rid of porting full stop, as it’s sold as a benefit yet, it’s the opposite.

“Porting can easily trap a borrower into that lender for years by leapfrogging separate parts of the mortgage.”

Rob Peters, principal at Simple Fast Mortgage, described porting as usually a “last resort”.

He added: “The difficulty with porting is that the current mortgage lender might not offer the best deal on the new property, so sometimes paying a small ERC can work out better overall.

“Alternatively, you might not be able to borrow the amount of mortgage needed from the current lender, which can result in a more difficult decision whether to move now or not.”

However, not all brokers dislike porting.

Scott Taylor-Barr, financial adviser at Carl Summers Financial Services, said it is a useful feature, and in some cases the additional money to top-up the loan for the new property purchase is granted by the lender.

But provider systems are lacking the functionality needed for the process, according to Taylor-Barr.

He added: “Some [systems] are great, many are clunky and a few are paper-based. A very few will only deal with clients direct for a port.”

Conversations around where rates will be in the coming months and years factor into decisions over whether to port in the current environment, Taylor-Barr added.