Selling a house with a Mortgage
Means to a Lend’s guide to selling a house with a mortgage:
First Charge Mortgage
A mortgage is also known as a “First Charge”, meaning that whoever has given a loan to buy the property must be the first to be repaid that loan, plus any outstanding interest or charges before anyone else.
To put it simply, if you sell a house for £200,000 and it has a mortgage (first charge) of £100,000, then it is part of the legal process, usually undertaken by your solicitor or conveyancer, to ensure that the lender is repaid from the sale of the property before releasing any money to you as the seller.
If you are buying another property with the proceeds of the sale of one property then it is important that all the transactions occur at the same time, for instance, receiving the money from the sale of your property, repaying the existing mortgage and paying for your new property.
If you are buying the new property using a mortgage from a different lender from the one you had for your original property, then the new money being used from the new lender will also have to be received at the same time as all the other transactions.
Second Charge Mortgage
As well as a mortgage, or first charge, it is also possible to have an additional loan (or loans) secured on your property.
These are generally referred to as second charges as they too have to be repaid on the sale of the property. However, the term second charge indicates that whoever has lent the money for a second charge will be paid after the first charge has been settled.
The interest rate for second charge loans are higher than that for first charges (mortgages), this partly reflects the fact that the second charge lender is taking a greater risk by agreeing to be repaid after the first charge has been settled.
In reality, both the first and second charge are settled at the same time. A problem only occurs if the proceeds from the sale of the property are not enough to repay the loans that are secured on the property. When this situation arises you are still responsible for any debt outstanding after all the money from the sale of the property has been used to repay as much of the outstanding first and second charges as possible.
It is a myth that if you fall into difficulty with your mortgage and cannot meet the repayments you can ultimately just “walk away” or “give the keys back”. The truth is that if you cannot meet the repayments on your mortgage, then the interest, if not paid, will continue to be added to your outstanding mortgage balance. It is possible that eventually that outstanding balance will grow to an amount above the sale price of your property and you will still be responsible for paying the lender back any amount they do not recover from the sale price.
