If you want to mortgage a property you own outright, you shouldn’t have too much trouble doing it. There is lower risk involved for lenders, so it’s usually less trouble to secure a mortgage on an unencumbered property than it is to obtain a mortgage to buy a new home.
Though an unencumbered remortgage is usually relatively simple, you shouldn’t rush into the first option available. There are many things you should consider, like the fact that a remortgage means taking on a new financial commitment. If you are certain that you wish to raise capital on mortgage free property, you’ll want to find the best possible mortgage deal for doing so.
What is an unencumbered mortgage?
In the mortgage world, ‘unencumbered’ has a very specific meaning. Essentially, it is the word we use for a property that has no mortgage to pay on it. That means there must be no loans, charges or restrictions in place. If you’ve completely paid off your mortgage, or you purchased it outright with cash, your property is unencumbered.
Thus, an unencumbered remortgage is the term we use for any remortgage on a home that is ‘unencumbered’ or ‘mortgage-free’. There are various reasons why homeowners decide to remortgage their unencumbered property. It could be that you wish to move home without selling your existing property.
Or you may need to get hold of some capital to fund a home improvements project, or invest in a second property.
Unencumbered mortgage lenders
If you own an unencumbered property, you will probably have access to some superb deals. That said, some lenders will regard it as a purchase rather than a remortgage. This shouldn’t affect your mortgage in any way, however, as it is still the same in principle. Nevertheless, it’s important to develop a good understanding of the process of unencumbered remortgages before you apply.
Technically speaking, the term ‘remortgage’ is defined as replacing an existing mortgage with a new one. As your property is mortgage-free, a true ‘remortgage’ is not actually possible. That said, the processes are the same for unencumbered properties. This is why some lenders will still classify it as a remortgage, while others will call it a new purchase. You won’t be short of options to choose from, with a wide range of lenders and fees at your disposal.
Having paid off a mortgage in full, or purchased a property outright, you have shown lenders that your financial situation is stable, so there should be no obstacles to securing a mortgage. You can get expert, tailored advice from the team at Think Plutus to ensure you are going about it in the best possible way.
Capital raising on a mortgage free property
If you have outright ownership and a mortgage free property, you’re in a very strong financial position. It could be financially beneficial to take on a mortgage, but this will depend on your unique circumstances. As with any mortgage, you should consider carefully whether an unencumbered remortgage is a good idea for you. Think about the following considerations:
- It’s a new financial commitment: Right now, you own a mortgage-free home. A new mortgage will be a new financial commitment, and you need to understand the implications of this. Will you be comfortable taking on a new monthly expense?
- Risk: Mortgages have an element of risk attached. With a secure home, do you really want to bring a new element of risk into your life? If you fail to keep up with repayments, you could lose your home. Even if you have good financial stability, you must not ignore the risk.
- Your reasons: Do you want to carry out home improvements? Invest in a new property? Borrow for a personal gift? Your reasons for taking on a new mortgage must make sense financially. A mortgage adviser can help you assess this element.
- Debt: If you already have debts, you might want to think twice before mortgaging an unencumbered property. Your own circumstances are the key – a mortgage adviser can give you bespoke advice about this, and remember there are specialist remortgages designed for consolidating your debts.
I own my house outright can I remortgage?
A mortgage on a property owned outright is no different from any other mortgage. Lenders will carry out their standard assessments around your income, affordability, loan to value (LTV) and any debt you may be in. Lenders will also consider your reasons for remortgaging.
Your employment status and age will have an impact on the deals and mortgage products you qualify for. There are many, many variables that will have an impact, so the best way to find out what to expect would be to speak to an adviser from Think Plutus. You can tell your adviser all about your current circumstances and they will be able to find the best possible mortgage deal for you.
Unencumbered remortgage on a property in bad condition
It’s not uncommon for investors to buy dilapidated properties outright with cash, which they will then refurbish to sell for a profit or rent out. Alternatively, you may live in a property that is in need of a refurbishment.
Unencumbered remortgage for investment
For the most part, investors buy with cash. Usually, this is down to one of the following three reasons:
1. The deal needs to happen quickly, like with auction deals.
2. The property is in a state of disrepair that makes it non-mortgageable.
3. They want to be able to resell the property within 6 months, and a mortgage would prohibit such a quick resale.
By carrying out renovations, investors add value to a property. They then look to remortgage in order to release capital for their next property development or investment project. If you have access to sufficient capital to buy a property outright, this may apply to you.
Buying a property outright with cash makes it ‘unencumbered’. If you plan to get tenants in, or move into the property yourself, you may benefit from a remortgage. You should be aware, however, that you may not be able to qualify for a remortgage for 6 months. If you need that mortgage quicker than this, speak to our advisers and we’ll find a specialist lender who may be able to accommodate your needs.
Residential remortgage
If the years have not been kind to your property, this shouldn’t disqualify you from an unencumbered mortgage. As long as the home is habitable, qualifying for a mortgage is fairly straightforward (assuming you meet the other criteria). However, if the property is uninhabitable, it could be a struggle to obtain a mortgage. You may need to consider other options, such as refurbishment and bridging finance.
If it is only the kitchen or bathroom that is problematic, many lenders will still judge your property to be uninhabitable. This will be enough for them to decline your mortgage application. If you are uncertain, make use of Think Plutus to advise on any questions you have about an unencumbered remortgage.
Unencumbered mortgage with bad credit
If your credit history is not great, and you wish to obtain an unencumbered mortgage, it will be challenging – but not impossible. Your options will certainly be limited by having adverse credit, but there are lenders who specialise in borrowers with credit issues who may consider you.
The more recent your credit issues are, the harder it is to get a mortgage. Any credit issues that are historic – meaning they happened 6+ years ago – shouldn’t stop you from accessing some pretty competitive deals.
The nature of your adverse credit issues will also play a role in lenders’ considerations. Defaults and late payments are less severe than things like repossession and bankruptcy. That said, our advisers have even been able to secured mortgages for borrowers with severe credit issues, so all is not lost!
Remortgage an inherited property
There can be mixed emotions when dealing with an inherited property. You could be going through a difficult time, but the process of transferring ownership of an estate still needs to happen.
There can be complications with inheritance, such as disputes between family members and unknown charges and restrictions on the estate. Your solicitor is legally obliged to represent your best interests throughout the process, so you will be made aware of your legal entitlements.
If you’ve inherited a property that is unencumbered, you might want to remortgage it to release some capital without selling. Capital raising on mortgage free property, The money you raise could be used to buy a new home whilst putting the inherited property on the rental market. In the business, this is commonly referred to as let-to-buy. It isn’t always straightforward, since most lenders will want you to have owned a property for at least 6 months before remortgaging.
In spite of the restrictions, the specialist mortgage advisers at Think Plutus can connect you with lenders that will consider these kinds of circumstances. Make an enquiry today and one of our advisers will be in touch. We will be able to answer your questions and get the ball rolling if you choose to proceed with an application to mortgage your unencumbered home.