A property that you own outright, without any outstanding mortgage, is referred to as unencumbered. With no mortgage you will own 100% of the equity in your house.
You are able to borrow money against an unencumbered or mortgage-free property.
As you already own your home the risk for a new lender is low, so it should be a relatively straightforward process. However, applying for a mortgage is not something that should be rushed in to. Here we will explain the options and steps needed to remortgage a house that has no mortgage.
Will I need a mortgage or a remortgage?
Usually the term ‘remortgage’ is used where a homeowner swaps from one lender to another without moving home. The phrase ‘mortgage’ is commonly used where it relates to the purchase of a property.
It’s OK to use either term but we prefer to use remortgage as it more accurately conveys that you will not be moving home.
A Complete Guide to Remortgaging
Unencumbered properties
Probably the most common way that homeowners get to the point of owning their home outright is when their mortgage finishes. After all those years of making monthly payments the property is finally mortgage free!
Some homeowners were fortunate enough to be able to pay for their home with cash. (presumably quite a few years ago if you look at the current property prices). This could have been with hard-earned savings or possibly an inheritance or windfall.
It’s also possible to be gifted a property in someone’s will but can you release equity on an inherited house?
Will I qualify for a remortgage?
Even though you may fully own your property at the moment, your mortgage application will be assessed in-line with the lender’s mortgage criteria. This will include looking at your income, employment type, credit status, affordability, loan to value and the property itself.
The new lender will need to check that you are able to afford the monthly mortgage payments on the new mortgage. Should they feel that the amount you have asked for is unaffordable then you could reduce the amount to a level that the lender is happy with.
We can suggest a remortgage expert for you to talk to and they will be able to work out what you can qualify for.
How much can I borrow?
How much you can borrow will be determined by your financial situation as mentioned above and the loan to value.
The loan to value, or LTV, is the maximum percentage of your property value that the lender could provide, subject to affordability checks.
For example:
| Property value | £300,000 |
| Maximum loan to value percentage | 75% |
| Maximum mortgage | £225,000 |
The mortgage deals available to you will depend on how much you want to borrow as a percentage of the property value. So a mortgage at 40% LTV could achieve a cheaper interest rate when compared to a mortgage at 75% LTV.
Buying someone out
A remortgage may be needed to buy someone out who is leaving a property that is owned without a mortgage. The first thing to do is agree on how much money they will receive for their share of the equity in the house.
Then a mortgage application is made to raise all, or some, of the money needed to pay them off. This will be a transfer of equity mortgage. Don’t forget that the remaining person needs to be able to qualify to borrow the fund needed, and be accepted by the lender.
How does an unencumbered mortgage work?
Generally you will have all of the same choices for a standard remortgage. So you can choose the repayment method, mortgage term and the type of interest rate.
All of these options will be affected by your age and affordability.
Setting up a remortgage does involve a solicitor but you can often use the lenders solicitor for a reduced fee, or occasionally for free.
Once the mortgage has started you will make monthly payments to your lender.
CONTACT A REMORTGAGE EXPERT
If you wish to investigate your re-mortgage options we can put you in touch with a fully qualified whole of market mortgage broker.
What can the money be used for?
The remortgage lender will take a keen interest in why you need to raise the capital sum and what you will be doing with it. So you could remortgage so that you can buy another property or perhaps to consolidate unsecured debts to make them more affordable.
Each lender will have their own rules and some will be more conservative than others. Here are some acceptable reasons to remortgage and raise capital:
- To consolidation debts
- Gifting money to a relative to buy a property
- Buying a buy to let property
- To buy another house
- Buying a holiday let property
- Buying a residential property for themselves
- Buying a second home in the UK or abroad
- Home improvements for any property they own
- Paying off an ex-partner (transfer of equity)
- Pay an Inheritance tax bill
Before you make any firm decisions we would suggest talking over your plans with a remortgage expert.
What type of property can be remortgaged?
There aren’t really any restrictions on the type of property. It just means that your mortgage broker needs to approach the right lender for that style of property.
So these types will be acceptable:
- residential property
- buy to let
- HMO
- Multi-unit freehold blocks
- Holiday let
- Commercial
- Semi-commercial
To get the best mortgage terms the property will need to be in good condition and habitable.
Capital raising mortgages can be arranged for uninhabitable properties or those in need of extensive repairs. These tend to be short term bridging loans, which can be arranged very quickly but do have a higher rate of interest. The aim is to generate the funds needed to improve the property and then remortgage to a cheaper lender as soon as possible.
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Remortgaging an inherited property
Being gifted a property can lead to some unexpected complications.
If you have inherited an unencumbered property then you may wish to remortgage it to release some capital. If the property concerned is a buy to let then you will need to apply for a buy to let remortgage.
The extra money can then be used to improve the property, either for letting or for selling.
You will find that the majority of lenders will require you to own the property for six months or more before you can apply for a remortgage. This is sometimes referred to as the ‘six month mortgage rule‘.
There are lenders that will grant day one mortgages with less than six months of ownership and your broker will be able to search for the best one. In this article we take a look at who would need a day one remortgage.
Can you get a remortgage without any monthly payments?
With a standard property remortgage you will need to make monthly payments to the lender.
An equity release mortgage is available to homeowners aged 55 and above and comes with the option for the payments to be ‘rolled up’ or added to the mortgage balance so there’s no need for monthly payments.
Borrowing into your retirement years is becoming more common, and there are a good number of mortgages suitable for pensioners.
Our Equity Release Guide covers the range of later-life mortgages in more detail and you will also need to receive independent mortgage advice from a qualified adviser to apply for an equity release mortgage.
The next steps
Before applying for a mortgage it’s a good idea to chat over your ideas with an independent mortgage broker.
You will find that your personal situation and the reason for needing the money will determine which lenders you can apply to. Your broker will be able to very quickly narrow down this number and then let you have a look at a couple of deals.
Once you’ve decided on a deal your broker will help with the paperwork and mortgage application.
