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Unencumbered Mortgages

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Pete Mugleston

Author: Pete Mugleston - Mortgage Advisor, MD

Updated: December 1, 2021

An ‘unencumbered’ property means that it’s mortgage-free, with no loans, charges or restrictions registered against it.

Whether you’ve recently paid off your mortgage or bought your property outright, at some point you may wish to remortgage for moving to a more expensive home or renovating your current one, buy a car, consolidate debt, or even purchase a buy to let.

When you want to remortgage a paid-off mortgage-free property, there are a number of key factors that impact what mortgage you’ll be eligible for, so let’s explore some frequently asked questions and typical scenarios…

Is an unencumbered mortgage a remortgage or a purchase?

Obtaining your unencumbered mortgage may seem simple enough, however, some lenders will be particular about what they consider a remortgage or a purchase mortgage.

By definition, a remortgage is based on having an existing mortgage and wishing to refinance whether this is to raise finances (against the property) or move home altogether. If a lender considers this a remortgage (further borrowing against existing loan), the usual lending criteria will still apply to include: income/affordability, your recent credit history, outstanding debts, max LTV etc.

On the other hand, a purchase mortgage of an unencumbered property would also entail borrowing money based on your income/affordability etc. (as mentioned above) BUT, this type of mortgage is distinctly different. Don’t worry, most lenders will consider your circumstances for borrowing no matter how they define their mortgage products.

How can I get a mortgage on a house I already own outright?

If you’re in a position where you wish to remortgage a house you own outright things to consider might include:

  • Your purpose for the loan (e.g. A home improvement, To fund a BTL investment, Funding for business purposes, Buy someone out of the house, Borrowing for a purchase like a car or holiday).
  • Your affordability and income affecting the amount you can borrow.
  • The balance and repayments on other outstanding debts (cards, loans etc.)
  • Any adverse credit (late payments, defaults, CCJs, IVA, Bankruptcy etc).

If you’re considering raising capital when you remortgage a house owned outright, be aware that most calculators won’t consider your actual eligibility, usually only providing an idea of costs. To check which products you are eligible with, you’ll need to speak to an expert.

Raising a mortgage on an unencumbered property – inheritance

For many of us, there will come a time when we’ll inherit all (or a portion of) a family member’s estate when they die. Whilst this can often include a valuable piece of real estate, actually dealing with the property at the time can present its own challenges, including the restrictions that many lenders place on remortgaging on a house owned with no mortgage, when you have owned it less than 6 months.

Fortunately, there are specialist lenders who will consider these specific scenarios, so contact us for expert advice on which lenders can help you.

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I own my house outright but want a mortgage to buy out my ex-partner

These days it’s a fact of life and currently, in the UK, around 42% of marriages end in divorce, while the number of single people in their 50s has doubled in the last 15 years. With relationship breakdowns like this, financial complications can arise as most married couples inevitably buy a mortgaged property together. We actually have a very useful article on mortgages and divorce here.

In the meantime, your first option would be to sell the property and go your separate ways. However, when children are involved, for example, this is often impractical if not near impossible, meaning one person will buy the other out i.e. transfer ownership and buying out the equity too.

So if you own your house outright you can remortgage, simply make an enquiry with us and an expert remortgage broker will talk you through your options to borrow.

Qualifying for an unencumbered mortgage

Getting a mortgage on a house you own outright like any property transaction, will always require common factors to be taken into consideration such as the Loan to Value (LTV) percentage, supported income, your current loans/debts and whether you’re looking to obtain a residential mortgage or a Buy to Let mortgage.

Whether your income is from an employed (PAYE) job or you are self-employed, your max LTV calculation could be up to 85% for a BTL investment or 90% for a residential remortgage (by exception 95%).

Remortgaging an unencumbered property if you have adverse credit

If you have adverse credit it changes the landscape of which lenders will consider you. Thankfully, this market is extremely competitive at the moment and there are a number of lenders considering all manner of adverse credit issues, historic or more recent. For more on this read through our bad credit mortgages section for specific information on the credit issues most relevant to your situation.

In brief, if the issues are older, smaller, or you have a large amount of equity, then you’ll have much more chance of approval. The type of credit issue also has a major impact, with late payments having less impact than defaults, CCJs, IVA, Repossession and Bankruptcy, accordingly.

The good news is, we work with the experts who arrange adverse credit mortgages everyday, so make an enquiry and we’ll put you in touch!

Remortgaging to pay off debt –  What can I raise money for?

Many people are borrowing against their home by remortgaging in order to pay off smaller debts – even business-related.

These might include:

  • Debt Consolidation – Many of our customers enquire about a remortgage for the purpose of consolidating their debts, as loans against property is often the cheapest way to borrow (often due to the high-interest payments for smaller debts). Some lenders may restrict the max LTV for borrowing.
  • Business Debt and Tax Payments – Many lenders may not allow borrowing at all particularly in the case of paying off business debts or a tax bill, so ensure you speak with one of our specialists to see how we can help with your individual circumstances regarding your business debts.

Therefore, we’re not ruling out every lender, some will discuss raising a mortgage on an unencumbered property for reasons which are completely non-property related, like those mentioned. Find out more in our guide to remortgaging to pay off debt.

My unencumbered property is in poor condition. Can I remortgage?

Buying a house with cash and then getting a mortgage because you wish to improve the condition of the property is something many people consider a sound investment, particularly if the value of the property increases from the date of purchase.

Often inheriting money can leave you with a lump of capital whereby investing in property is often the safest method of securing your future and more importantly, gaining a decent ROI in the time you own the property. Some lenders may label this as ‘property development’, and many of those considering such mortgages will impose a minimum 6 or 12 month ownership before they’ll accept applications and release funds.

Thankfully, there are specialist lenders willing to waive this period and will lend from day 1 of ownership.

Other lenders also restrict approvals based on the current condition of the property and how much work needs doing. Additionally, a major consideration with properties in ‘poor condition’ is the habitability.

By definition, this means the property must be habitable: i.e.

  • Watertight (the roof is in a decent state of repair),
  • Has electricity and running water,
  • A basic kitchen, and
  • A functional bathroom (toilets located INSIDE),
  • Is self-contained and ultimately safe to live in.

That said, there are lenders offering finance on properties in dire need of renovation that are completely uninhabitable, but this is usually short-term bridging finance and comes at a higher cost than a mainstream mortgage.

If you’re considering purchasing a property for cash (at auction or otherwise) and know it will require extensive works meaning the property is deemed uninhabitable, we can help advise on ways you can find a mortgage before any works are completed i.e. payment of funds upfront.

So, if you wish to buy a house for redevelopment with cash and then get a mortgage, one of our advisors can talk through your options.

Call us today on 0808 189 2301 or make an enquiry and we’ll introduce you to a remortgage broker who specialises in cases just like yours. We won’t charge a fee and there’s no obligation to act on the advice you’re given.

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About the author

Pete, an expert in all things mortgages, cut his teeth right in the middle of the credit crunch. With plenty of people needing help and few mortgage providers lending, Pete found great success in going the extra mile to find mortgages for people whom many others considered lost causes. The experience he gained, coupled with his love of helping people reach their goals, led him to establish Online Mortgage Advisor, with one clear vision – to help as many customers as possible get the right advice, regardless of need or background.

Pete’s presence in the industry as the ‘go-to’ for specialist finance continues to grow, and he is regularly cited in and writes for both local and national press, as well as trade publications, with a regular column in Mortgage Introducer and being the exclusive mortgage expert for LOVEMoney. Pete also writes for OMA of course!

Read more about Pete

Pete Mugleston

Mortgage Advisor, MD

FCA disclaimer

*Based on our research, the content contained in this article is accurate as of the most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The information on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs.

Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.

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