How to sell my mortgaged flat to buy a new one

In this post we explain the 3 most common ways to sell a property with a mortgage.

Buying a home is, in many cases, a once-in-a-lifetime investment, which, in even more cases, requires a mortgage loan to be carried out. But life is full of twists and turns, and many of you often ask us: "How can I sell my flat with a mortgage to buy a new one? The reasons for selling your house can be myriad and the pandemic has shaken the property market in an extraordinary way, but is it possible to sell if you still have a mortgage in place?

Selling a mortgaged flat to buy a new one

Cancellation of the mortgage

This is the most common of the three options. The existing mortgage is cancelled to leave the flat free of encumbrances before formalising the deed of sale. The mortgage can be cancelled before a notary when the sale of the house is formalised with the new owner.

Depending on the selling price of the flat, two situations may arise:

• If you sell above the value outstanding on the mortgageYou can make the cancellation directly in front of the notary. One part of the cheque for the purchase will go to the bank to pay the remaining value of the mortgage; the other part can be paid into your account. In order to do this you will need a certificate of zero balance from the bank, and after the signature in front of the notary, the buyer has to register the cancellation of the debt in the Land Registry.
• Yes, on the contrary, you sell the flat for less than the outstanding mortgage valueIf you do not pay off the debt, there will still be a part of the outstanding debt after paying the bank all the proceeds from the sale of the flat. In this way, this debt becomes a new loan. It is important that you assess well if the sale is going to be profitable: a new mortgage can make the operation much more expensive and make it difficult for you to buy the new house.

One last point: as you may know, most mortgages contain clauses that penalise the early repayment or cancellation. Before doing so, check whether you have to pay a cancellation fee and how much it would be.

You will be exempt from purchase tax as long as the total amount obtained from the transfer is reinvested in the purchase of the new property.

Mortgage subrogation

"Selling my flat with a mortgage it makes a mountain out of a molehill", our clients often confess to us. If paying the cancellation fees puts your plans in disarray and jeopardises the sale and purchase, the option of mortgage subrogation means that the seller (the current owner of the house) passes on the mortgage to the purchaser and future owner.

The particularity of this method requires a considerable carambola: that the buyer accepts the conditions of the existing mortgage, because he is the one who will assume the cost; and that the financial entity looks favourably on the economic situation of the future owner and new debtor. The bank will approve or deny the transfer operation once it has been approved. study your creditworthiness and ensure that there is no risk. This study is usually carried out under a bank commission, which must be paid by the seller.

Despite its limitations, this is a very common practice, since mortgage subrogation involves two important benefits:

1. Although the transaction is subject to stamp duty (IAJD), it is exempt from payment (except in the Basque Country for mortgages on non-habitual homes). It is important to duly complete and submit the IAJD form 600 to the Tax Office to prove that the cancellation has been deeded.
2. You save paying a fee to the bank for the cancellation of the mortgage.

Bridging mortgage

"I need to sell my mortgaged flat as soon as possible! In a sale and purchase, the economic factor is vital, but what can really mark the viability of the operation is your position regarding the factor time. Either because the sale is slower than you expected or because you are in a hurry, you may well find yourself in the need to buy a new house before selling your old one. And this is where the bridge mortgage comes into play: instead of having two separate mortgages, these are unified. The advantage is that the amount of a single mortgage is less than having two separate mortgages, but the condition is that you have to pay the same amount as if you had two separate mortgages. sine qua non is that sell your old house. 

When you sell your house, all you have to do is cancel the mortgage of the "old" one and formalise a new one linked to the flat you have acquired. Of all the ways proposed in this article, this is the one that offers the most flexibility. Joining mortgages allows you to move quickly, so it's a great option if your new dream home crosses your path and you don't want to lose it.

The time you have to sell your house will be, in any case, the time agreed with the bank in the conditions of the bridging mortgage. But be careful, it is possible that in the time it takes you to sell your flat, the market price may go down, you may not end up having the expected income and you may find it difficult to pay the mortgage.

By the way, how will the sale of my house affect my personal income tax return?

We couldn't finish without talking about taxes, I'm sure you've already missed it! As it would be a reinvestment of the primary residence, since all or part of the money obtained from the sale of the primary residence is destined to the purchase of your new primary residence, you will be exempt from purchase tax provided that the total amount obtained from the transfer is reinvested in the purchase of the new property.. If the amount reinvested in the purchase is less than the amount obtained from the sale, only the proportional part of the gain obtained and used for the purchase of the new home will be excluded from taxation.