Back To Back Mortgages: The 6 Month Rule
Need to find a mortgage within six months of an initial property purchase? A back to back mortgage might be the answer.
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Unless you’re an experienced property investor the subject of back-to-back mortgages – or sub-sale transactions, as they’re also known – might be tricky to decipher. But you could also find yourself in a position where you need help in navigating through such a situation.
This is a relatively niche corner of the borrowing marketplace and is fairly complex, so here we try to explain what back-to-back purchases are, when they might be used, which lenders are willing to provide them, and under what circumstances.
What is a back to back mortgage?
This is when you’re trying to finance a purchase on a property that has been owned by the vendor for less than six months. Typically, lenders are not willing to do business as usual if this is the case, so special provisions have to be made for certain circumstances where a buyer’s intentions are above board.
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Why might you need one?
As we’ve already mentioned, there are certain situations in which a back-to-back mortgage is sought after or unavoidable.
- Repossession: If the home you wish to buy has been repossessed within the last six months and is now in the hands of a lender, there are a good number of banks who will be willing to look at your application, despite it falling within that early sale period (Precise Mortgages, Halifax, Nationwide, Accord Mortgages and NatWest, to name a few).
- After bridging loan purchase: Another reason might be if you needed to buy your home using a bridging loan and you now wish to mortgage the property long-term. There are fewer lenders on board here, but a good broker will be able to help you find which ones are amenable in this area. For example, Barclays is open to lending from ‘day one’ following completion for bridging loan customers. Read more about day one remortgages
- Inheritance and part exchange: Far more lenders are cooperative to applicants who have just inherited a property and now want to mortgage it on a residential basis, and there are a good number who will accept you if your home has been recently sold in a part-exchange deal.
- Cash buyers: You might simply want to get a mortgage on a home you’ve just bought for cash but you now want to release equity to do some improvements or purchase another house. These ‘customer funded’ back to back mortgages are open for consideration at Santander, Furness Building Society and Norton Home Loans, for example.
There are other reasons too, but be aware that whatever is prompting your application, every lender will certainly want a reason they deem valid.
What is a 6 month rule with mortgages?
What lenders want to avoid is a three-way buy and sell scheme taking place for commercial profit (e.g. A selling to B, B selling to C within a short timescale), which is considered unethical and risky. This is also known as a sub-sale purchase, and the practice of quick sales for monetary gain was clamped down following the 2008 financial crisis.
The Council of Mortgage Lenders (CML) introduced guidelines with a recommendation that UK lenders do not allow mortgages or remortgages to be approved within six months of the original property purchase. This is not a legally binding rule, however, and while lenders tend to remain very cautious in this area, many are willing to look at applications on a case-by-case basis with firm due diligence in place.
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Which lenders will offer a mortgage within 6 months?
Halifax will lend to applicants who have acquired a property via inheritance, but won’t allow customer funded (cash buyer) ones. While NatWest is approachable for all above-board eventualities, TSB is unlikely to be open to such loans for traditional borrowers in general. The likes of Barclays, HSBC, Santander and Nationwide all practice the 6 month rule, but have varying degrees of leeway on this. Smaller and more niche lenders are the same.
In general, there is no blanket stance from lenders on this, because some lenders are willing to offer a sub-sale transaction for certain circumstances whereas some will simply not entertain applications at all.
This is where approaching a broker with experience in this area beforehand can be a shrewd move. They will be able to identify the best lenders willing to offer mortgages for your specific circumstances.
How to get a back to back mortgage
It is highly advisable to get as much help from resources and experts as you possibly can before you begin this complex process.
This is how to get started:
- Get your credit reports: Get an idea of where you stand initially by understanding your financial background. This will give you a clearer idea of any hurdles that may lay ahead. Find out how to check your credit score here.
- Find a good broker: Once you have your reports, you can then find a specialist and experienced advisor, like the ones in our network, to help you understand what your prospects are going forward and how to proceed.
- Collect your documents and evidence up: With your broker’s help, collect all the relevant paperwork to strengthen your application – particularly around why you’re looking for a mortgage within this timescale – and get to work together before approaching relevant lenders.
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Do you have to wait 6 months to remortgage?
No, you can apply for a back to back remortgage within six months, as we’ve already outlined above. However, it’s worth noting that around half of all UK lenders will not accept your application if your mortgage is less than six months old.
Your broker can help you to ascertain what the varying degrees of stipulations and allowances are for those that do. For example, what loan-to-value (LTV) lenders might be willing to stretch to, which ones are open to lending to people in your situation, and what happens if the market value of the property has risen or fallen.
Speak to a broker experienced in back to back mortgages
It makes sense to find the most experienced, understanding and reliable impartial broker you can when it comes to complex financing of this magnitude. Quite simply, your chances of success are undoubtedly far greater if you have the right person on your side who understands the industry.
The brokers we work with can offer you that five-star service and you can be safe in the knowledge that finding the right person doesn’t have to be another arduous challenge. Our fully trained specialist experts can be matched to you quickly after a simple free initial consultation with us. Call us today on 0808 189 2301 or make an online enquiry for details.
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