When you own your house outright, it is still possible to remortgage if you want to raise extra funds. These are known as unencumbered mortgages because there are no loans or charges on the property. This is where you have been in a position to pay off your mortgage but now want to remortgage for some reason to borrow some of the equity in the property – you may want to consolidate some debts, renovate the property or even purchase a Buy to let property.
When you are mortgage free and want to remortgage, there are a few considerations that will be used to consider the case by the lender.
A remortgage or a purchase?
At a glance, getting a remortgage when you don’t have a mortgage should seem simple enough. But there are some lenders who are a bit cautious about them. Normally, a remortgage is where you have a mortgage and want to move house, raise money or change the terms for a better deal. The usual lender criteria will still apply looking at income and affordability, credit history, debts and the loan to value ratio.
When you don’t have a mortgage, the same criteria would still come into it. But there are other considerations – however, when you work with a mortgage broker, they will be able to help find the right lender for your situation.
Getting a mortgage when you own outright
If you own the property there are still reasons why you might want to take out a mortgage. Examples include raising money for a home improvement, a buy to let property, business funding, to buy someone out of something or even to buy a car. Your affordability and income will still affect how much you car borrow, even when you own the house outright and other debts you have will factor in, unless you are paying them off. Finally, adverse financial history will also play a part such as late payments, defaults or bankruptcy.
Raising a mortgage on an inherited property
Many of us find ourselves in the position of inheriting some or all of a property when someone dies. This can be a great way to gain extra money but there are issues if you want to take a mortgage on it. One of them is that you haven’t owned the property for 6 months or more and another is that others might have a share in the house.
The good news is that there are specialist lenders who will help you get a mortgage on an inherited property.
Getting a mortgage to pay off a partner
If you own the property outright but in joint names and you separate, you may want to get a mortgage to buy out your partner’s share of the house, so you own it all. Sadly, 42% of all marriages end in divorce and this means it is something that lenders often see.
You can sell the property, split the money and go your separate ways. But if one of you wants to stay in the house, maybe there are children involved or moving isn’t practical, then you can look at getting a mortgage to buy the other half of the property, even if you currently own it outright between the two of you.
Qualifying for an unencumbered mortgage
The process of qualifying for an unencumbered mortgage is similar to any other. Things like income and outgoings, loan to value ratio, current loans and debts and the reason for the mortgage will all come into it. If you have a job or are self-employed, the LTV could be up to 85% for buy to let mortgages and up to 90% for residential mortgages.
Adverse credit issues do limit the number of lenders that can consider you – for example, High Street banks often won’t be able to help. But there are still plenty of lenders who will consider different situations.
Basically, older or smaller financial issues or if you have lots of equity in the house you have a greater chance of getting the mortgage you want. The kind of credit issue will also play a part – late payments have less effect than an IVA or bankruptcy.
Working with a broker, however, means you get access to a wide range of lenders and there is almost always someone who will consider your situation.
What can the money be used for?
What the money will be used for does play a part in the decision about the mortgage. For example, if you want to consolidate your debts, mortgage companies will often view this positively as you are reducing monthly outgoings, cutting down interest and ensuring payments will finish at a set point.
However, if you want to pay a tax bill or clear business debts, lenders may be more concerned, and some will not consider it at all. It often depends on the reason you have these problems and if they are likely to reoccur.
The house is in poor condition
Improving the condition of a house with a remortgage is often seen as a sound investment of the money for lenders as it will increase the value of the property at the end. If you inherited the house and it needs work, they may also view this as a good investment, although some companies require 6 months ownership before offering a remortgage.
Other lenders want to know what needs doing and want to ensure that the property is habitable before committing. This is generally described as the housing:
- Being watertight with a roof in a decent state of repair
- Has electricity and running water
- A basic kitchen
- A functional bathroom with an inside toilet
- Self-contained and safe to live in
There are ways to get financing for properties that don’t meet these standards and are in need of major work to be habitable. These are called bridging finance and are designed to get you the money you need to start doing the work until the house is in the right condition for a mortgage. If you are buying the property for cash at an auction, for example, then you might need to arrange a mortgage before work is completed to get access to money for the project