Should you sell your property to clear mortgage debts?

At last count, there were 10.94 million mortgages in the UK. The UK mortgage market is huge, with the outstanding value of residential mortgages clocking in at a whopping £1,486 billion in Q3 of 2019. But while the majority of Brits have a mortgage, when it comes to selling their home, many aren’t sure of what happens to their mortgage – or even if they can sell at all. And this brings us on to the big question: should you sell your home to clear your mortgage debt? And if you can, what happens if you’re in negative equity? Here, we will answer these questions and explain the process of selling a mortgaged property.

Can you sell your home when you still have a mortgage?

The simple answer is yes. But it will not always be as simple as that. First, you’ll need to discuss with your lender about the current mortgage payoff. You’ll also want to check your loan documents to see if there’s any prepayment penalty. A prepayment penalty is a fee imposed by the lender should the borrower opt to sell the property before the loan is paid off.

Next, you’ll want to have a property valuation to ensure you’re not in negative equity. Negative equity means your home’s value is less than the value of the mortgage. In such cases, you’ll need a lender’s permission to sell the property, although the court can override this. However, negative equity is rare unless there is an economic recession such as the 2007-2008 financial crisis.

When should you sell your home to clear mortgage debt?

While it’s possible to sell your home to clear off your mortgage debts, the harder part is knowing when to do it. Below are two circumstances when it makes sense to sell the property to knock out debt.

1. You’re considering relocating

If you’re relocating to a different country or region, selling your home becomes a viable option. Even though your home holds a lot of emotional value, keeping it could strain you financially as you’ll need to pay the mortgage monthly and have enough for your next home.

If the relocation is work-related, you will probably have a relocation deadline. In that case, you’ll probably want to sell the house fast. Thankfully, there are many professional home buyers, like Sellhousequickly.co.uk, that can buy your property quickly and make a world of a difference.

2. Your mortgage payment is way too big

It may make more sense to sell the house if the mortgage payments are too big for your paycheck. Your mortgage payments should not be more than 25% of your monthly take-home pay. If you’re left with virtually nothing after paying for a mortgage, you’ll hardly ever make progress. That said, it might be best to sell the property and use the proceeds to clear your debts. Alternatively, you could find another way to increase your monthly income.

Wrapping up

A family home holds a lot of value to many people, especially if it’s your matrimonial home. However, if you’re struggling to pay your mortgage debt, selling the house could potentially save you a lot of trouble in the future. The good thing about selling the property is that the sale proceeds will clear off the mortgage. And if you’ve enough left over, you could use it to pay off other debts as well.

The editorial unit

The material contained in this article is of the nature of general comment only and does not give advice on any particular matter. Recipients should not act on the basis of this article’s information without taking appropriate professional advice.