Having a mortgage on your property does not prevent you from selling it. The vast majority of properties sold in the UK have an outstanding mortgage, and dealing with that mortgage is a routine part of the conveyancing process. What happens to the mortgage depends on whether the sale price covers the outstanding balance, whether you are buying another property, and whether your mortgage has an early repayment charge.

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How the Mortgage Is Repaid on Sale

When you sell a mortgaged property, the mortgage is repaid on the day of completion from the proceeds of the sale. Your solicitor requests a redemption figure from your mortgage lender, which is the total amount needed to repay the mortgage in full on the anticipated completion date, including any interest accrued to that date. On completion day, the solicitor pays this amount to the lender from the buyer's purchase funds. Any remaining proceeds, after the mortgage, the solicitor's fees, estate agent fees, and other costs, are the equity you receive.

You do not need to pay off your mortgage before listing the property or finding a buyer. The repayment happens automatically at completion.

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Positive Equity: Sale Price Exceeds the Mortgage

If the property sells for more than the outstanding mortgage balance, you are in positive equity. After the mortgage is repaid from the sale proceeds, you receive the difference as cash equity. This is the most straightforward situation and the most common outcome for homeowners who have owned their property for several years.

For example, if your property sells for 300,000 pounds and your outstanding mortgage is 150,000 pounds, you would receive approximately 150,000 pounds minus selling costs such as estate agent fees and conveyancing charges.

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Negative Equity: Outstanding Mortgage Exceeds the Sale Price

If the sale price is less than the outstanding mortgage balance, you are in negative equity. This situation requires you to make up the shortfall from other funds in order to repay the mortgage in full on completion. Your lender will not release their charge on the property unless the mortgage is fully repaid, which means the sale cannot complete without the shortfall being funded.

If you cannot fund the shortfall yourself, options include negotiating a shortfall arrangement with your lender, where they agree to release the property for less than the outstanding balance and you continue to owe the remainder as an unsecured debt, or waiting to sell until property values recover and you are back in positive equity.

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Early Repayment Charges

If your mortgage is on a fixed rate or discounted deal that has not yet ended, repaying it through a sale before the deal period expires will typically trigger an early repayment charge. These charges can be significant, often between one and five percent of the outstanding balance, so it is important to know what yours is before you agree to a sale price and completion date.

The early repayment charge will be included in the redemption figure your lender provides. It is a cost of selling that should be factored into your financial planning alongside estate agent fees and conveyancing costs.

Some mortgages are portable, meaning you can transfer the mortgage to a new property when you move and avoid the early repayment charge. If you are buying another property, it is worth checking with your lender whether your mortgage can be ported and whether the new property meets their lending criteria.

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Porting Your Mortgage

Porting means transferring your existing mortgage deal to a new property when you sell your current one. This is useful if you are in the middle of a fixed rate deal with a significant early repayment charge, as porting allows you to keep the same rate without paying the charge.

Porting is not automatic: you need to apply to your lender to port the mortgage, and they will conduct affordability and valuation checks on the new property as if it were a new application. If you are borrowing more on the new property, the additional borrowing will typically be on a new rate. Not all mortgages are portable and some lenders have restrictions on the types of property they will accept as security for a ported mortgage.

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Let to Buy

If you want to move to a new property but keep your existing home as a rental investment rather than selling it, this is known as let to buy. This involves converting your existing residential mortgage to a buy-to-let mortgage and releasing equity if needed to fund the deposit on your new purchase. This approach requires your current lender's consent and involves mortgage underwriting for both the existing and new properties. It is more complex than a straightforward sale but is a legitimate option if you want to retain the existing property.

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Summary

Selling a house with a mortgage is entirely standard. The mortgage is repaid automatically from the sale proceeds on completion, and you receive whatever equity remains after the mortgage, selling costs, and any early repayment charges are deducted. The key things to check before listing are your redemption figure, whether an early repayment charge applies, and whether your mortgage is portable if you plan to buy another property at the same time.