What is the impact of mortgage redemption figures on the selling costs of a property with an existing mortgage?

Mortgage redemption figures can materially reduce the net proceeds from a sale because they establish how much of the sale price must be paid to the lender before any remaining equity is released to you. The figure therefore affects whether the sale produces a surplus, covers the selling costs, or leaves a shortfall that needs to be addressed before completion.

How the figure affects your net proceeds

The basic calculation is the agreed sale price, less the mortgage redemption figure and the other costs connected with selling. Those costs may include solicitor’s fees, estate agency charges where applicable, removal expenses, leasehold administration charges and any other agreed deductions. What remains is the equity available to you.

This means that a property can appear to have sufficient market value while producing less cash than expected. The mortgage balance may be substantial, and the redemption figure can be higher than the balance shown on a recent mortgage statement because it is calculated for a particular repayment date. If the resulting equity is limited, even relatively modest selling costs can significantly affect the amount received.

The redemption figure is date-specific

A lender’s redemption statement normally applies to a stated date or period. Interest can continue to accrue until the mortgage is repaid, so the amount needed on the actual completion date may differ from an earlier estimate. A statement can also include charges that apply only if repayment takes place during a particular part of the mortgage term.

Your conveyancer should obtain an up-to-date figure for the proposed completion date and check whether it remains valid if completion is delayed. This is important where the transaction has a long period between exchange and completion, or where the completion date changes after the statement was issued. Relying on an old mortgage balance can lead to an inaccurate calculation of the money available to you.

What happens at completion

On completion, the buyer’s funds are usually received by the seller’s conveyancer. The conveyancer then uses the required amount to repay the mortgage and deals with the lender’s security over the property. The lender’s charge must be released so that ownership can be transferred to the buyer without the existing mortgage remaining registered against the property.

After allowing for the redemption payment and the agreed selling expenses, the balance is sent to you. A detailed completion statement should show the sale price, the mortgage repayment, professional fees and other deductions. Reviewing this statement before completion gives you an opportunity to query an unexpected charge or identify a shortfall in advance.

When the figure is higher than the sale proceeds

If the redemption figure and selling costs together exceed the sale price, the transaction has a shortfall. The sale may not be able to complete unless the lender agrees to an arrangement or you provide the difference from another source. This issue should be identified before committing to a completion date, particularly where the property has fallen in value, the mortgage was taken out with a high loan-to-value ratio, or additional borrowing has been secured against the property.

A property can also have more than one secured loan. For example, a second charge, further advance or secured home-improvement loan may require a separate redemption figure. Each secured lender may need to be paid before the title can be transferred, so ask your conveyancer to check the title and mortgage arrangements rather than relying on the main mortgage balance alone.

How to check the likely selling cost

1. Ask the mortgage lender for a redemption statement based on an estimated completion date.
2. Check whether the statement includes any early repayment charge, administration charge or other repayment cost.
3. Give the statement to your conveyancer and ask for a written estimate of the full completion calculation.
4. Add the expected legal, agency and property-specific charges to the redemption amount.
5. Compare the total deductions with a realistic sale price, rather than the highest possible asking price.
6. Confirm how long the redemption statement remains valid and what happens if completion is postponed.

If you are considering a cash sale, the buyer’s method of funding does not remove the existing mortgage. The lender still has to be repaid from the completion money, and the sale price must still cover the redemption figure and associated costs unless a separate arrangement has been agreed. Obtaining the redemption information early allows you to assess whether the proposed price is financially workable before progressing.

The key figure to focus on is therefore not the property’s sale price alone, but the net proceeds after the mortgage and every known selling cost have been deducted. Your lender can confirm the repayment amount, while your conveyancer can explain how it will be applied in the completion statement and whether any additional secured borrowing or legal issue affects the calculation.