What happens to your mortgage when you sell your house?

You do not need to pay off your mortgage before selling

This is worth saying clearly because it is a common misunderstanding. You do not need to clear your mortgage balance before you put your property on the market or exchange contracts. The mortgage is repaid from the sale proceeds at the point of legal completion. Your solicitor manages this process as part of the conveyancing.

As long as the sale price is higher than your outstanding mortgage balance (plus any fees), the transaction can proceed normally.

Step 1: Your solicitor requests a redemption statement

Once a sale is agreed and solicitors are instructed on both sides, your solicitor will contact your mortgage lender and request what is called a redemption statement. This is a formal document that sets out exactly how much you owe on the mortgage on a specific date, including any outstanding interest, fees, and any early repayment charges that might apply.

The redemption figure is calculated to a specific completion date, because the amount owed changes daily as interest accrues. Your solicitor will typically request figures valid for your expected completion date and often for a few days either side of it to allow for any slippage.

Step 2: Completion and mortgage repayment

On the day of completion, the buyer's solicitor transfers the sale funds to your solicitor. Your solicitor then uses those funds to repay the mortgage lender directly. This happens before any remaining money is passed to you.

The sequence is straightforward:

1. Sale proceeds arrive in your solicitor's client account.
2. The mortgage lender receives their redemption payment.
3. Your solicitor's fees and any other agreed deductions are made.
4. The remaining equity (if any) is transferred to you.

You do not need to contact the lender yourself. Your solicitor handles the redemption payment as a standard part of the completion process.

What are early repayment charges?

If your mortgage is currently in a fixed-rate or discounted period, your lender may charge an early repayment fee when you pay off the mortgage before the end of the deal period. This is sometimes called an ERC.

Early repayment charges typically range from 1% to 5% of the outstanding mortgage balance, though the exact figure depends on how far into the deal period you are and the terms of your specific mortgage. In the first year of a five-year fix, the charge might be 5%. In the fourth year, it might be 2%. Your mortgage terms will set this out.

On a £150,000 balance, a 3% ERC would be £4,500. It is worth calculating this before you commit to a sale price or timeline, as it affects how much equity you will receive after completion. You may wish to seek independent financial advice if you are unsure about the implications for your specific mortgage product.

Can you avoid early repayment charges by porting the mortgage?

Some mortgages are portable, meaning you can take the same mortgage product with you to a new property rather than redeeming it. This allows you to avoid the ERC by keeping the mortgage active across the sale and purchase.

Porting is not always available and is not guaranteed even when a mortgage is described as portable. You must reapply with the lender, who will reassess your affordability and the suitability of the new property. If you are buying a more expensive property, you may need to borrow more on top of the ported amount, potentially at a different rate.

A mortgage broker can tell you quickly whether your current mortgage is portable and whether it makes financial sense in your specific situation. We recommend speaking to one before making any decisions about timing.

What if the sale price does not cover the mortgage?

This is the negative equity situation. If your property is worth less than your outstanding mortgage balance, the sale proceeds will not be enough to redeem the mortgage in full. Your solicitor cannot complete the sale without clearing the charge on the property, so the shortfall must come from somewhere.

Options in this situation include repaying the shortfall from savings, agreeing a repayment plan with the lender, or negotiating a shortfall agreement with the lender where they agree to accept less than the full balance. These options are explained in detail in our guide to selling a house in negative equity.

The key thing to know is that negative equity does not automatically prevent a sale. It complicates it, but the situation is not as simple as "you cannot sell." Speaking to your lender and a financial adviser early gives you the most options.

Joint mortgages: what happens when one party needs to remove themselves

If you have a joint mortgage and one party wants to remove themselves from it, there are two common scenarios: selling the property and repaying the mortgage entirely, or transferring the mortgage into one person's name (sometimes called a transfer of equity).

A transfer of equity requires the remaining party to demonstrate to the lender that they can afford the mortgage on their own. The lender will reassess affordability and may not agree. If they do agree, both parties need solicitors, and there may be stamp duty and capital gains tax considerations depending on the circumstances.

For situations involving divorce or separation, selling the property and splitting the proceeds is often the cleaner solution, particularly when neither party wants to remain in the property. If you need to sell quickly, a cash buyer can complete without the delays of an estate agent process.

Capital gains tax: a brief note

For your main residence, you will generally not pay capital gains tax on the profit from the sale. The main residence exemption applies to the home you live in as your primary property. However, if the property is a second home, a buy-to-let, or a property you have not lived in for the full period of ownership, capital gains tax may apply to some or all of the gain. You may wish to seek independent tax advice before completing any sale where capital gains tax could be relevant. This guide does not constitute financial or tax advice.