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Unencumbered mortgage

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Unencumbered mortgage

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Last reviewed on 8th September 2023 by Martin Alexander (Mortgage Advisor)

If you own a property outright and want to remortgage, then it’s highly likely you’ll be able to do so with little or no fuss. The risk involved for lenders is quite minimal, so it’s often easier to get a mortgage on an unencumbered home in comparison with buying a new property.

Although an unencumbered mortgage tends to be a simple process, it still isn’t something you should rush into. There’s a multitude of options to consider, such as the new financial commitment of having a mortgage. If you do wish to remortgage your unencumbered home, then you’ll want to be sure that you’re getting the best deal possible.

Can I get a mortgage on an unencumbered property?

Yes, getting a mortgage on an unencumbered home is possible. In fact, owning a property outright can put you in an ideal position for a mortgage. This is because you can release equity by borrowing against your home. Nonetheless, lenders will still require you to pass an affordability check to ensure you’re able to repay the mortgage.

You can keep your mortgage rates to a minimum by taking a small mortgage. As a result, you’ll also retain more equity in your home. If you require a larger mortgage, you’ll leave less equity in your home and mortgage rates will be typically higher.

What is an unencumbered mortgage?

Let’s explain what the term ‘unencumbered’ actually means in the mortgage world. An unencumbered property is a term used for a property that is mortgage-free. The property must be free of any loans, charges and restrictions. If you’ve paid off your entire mortgage or purchased a property with cash outright, then the property is unencumbered.

An unencumbered remortgage is a term used for a mortgage on an unencumbered or mortgage-free home. Homeowners may look to remortgage an unencumbered property for a number of reasons.

You may want to move home, but keep your existing property to rent out. Alternatively, you may simply need a lump sum to carry out home improvements or purchase an investment property.

Will I qualify for an unencumbered mortgage?

Mortgages on properties owned outright are treated the same as any other mortgage. For instance, lenders will carry out standard assessments, such as income, affordability, LTV (Loan to Value) and outstanding debts that you may have. In addition, you may be remortgaging for residential or buy to let purposes. This is yet another factor that lenders will take into consideration.

Your employment status will also impact the deals you’ll qualify for. It really is difficult to list each scenario here, as the variables are endless. Our advisors are available to answer your questions and can search the entire market for the best possible deal available to you.

Unencumbered mortgage lenders

Owning an unencumbered home should give you access to some great deals. That being said, most lenders won’t treat this as a remortgage, but instead, as a new purchase. Don’t worry, this shouldn’t affect your mortgage, as the principles are still the same. Nonetheless, it’s important to understand the process of unencumbered remortgages before applying.

Do I need a new mortgage or a remortgage?

Technically, a remortgage is where an existing mortgage is replaced with a new one. As your home is mortgage-free, lenders can’t offer you a remortgage. That said, the process and procedures work entirely the same for unencumbered homes. Some lenders will still class this as a remortgage and some as a new purchase. Either way, you should have numerous options to explore in terms of lenders and fees.

If you’ve purchased a property outright using cash or have paid off a mortgage already, it shows lenders that you’re financially stable and securing a mortgage should be a smooth process. For tailored advice, you can make an enquiry or simply call us to get started.

Should I remortgage a house I own outright?

If you own your property outright, then from a financial viewpoint, you’re in a strong position. Taking on a mortgage may be financially beneficial, but it all depends on your own circumstances and reasons for doing so.

Raising capital on a mortgage-free property also carries risks. This is why an unencumbered remortgage needs careful thought and consideration, as does any mortgage.

Things you may want to consider are:

  • Your reasons for taking on a mortgage – You may want to purchase a buy to let property, carry out home improvements or borrow for a personal gift, such as a new car or holiday. The reason for taking on a mortgage should make financial sense. Your advisor can help you with this.
  • New financial commitment – You currently own a mortgage-free property. Taking on a new mortgage will entail a new financial commitment. Although lenders will assess your affordability, it’s important to understand the new financial outgoing that you’re about to take on. Will you be comfortable making these new payments?
  • Risk – Mortgages all have a risk. Your home is secure, and you’ve paid off your mortgage, do you need the additional risk? Failing to keep up with repayments can result in repossession. You may be financially stable, but it is still something you should be aware of.
  • Debt – If you’re in a lot of debt, then an unencumbered mortgage may not be the best idea. Nonetheless, it does depend on your own circumstances. Remember, you can make an enquiry at any time for a more informed answer to your own situation. If you need to raise capital due to debt, there are specialist remortgages for debt consolidation.

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Can I remortgage a property in bad condition?

It’s quite common for investors to buy rundown properties for cash, to then refurbish and sell or rent. On the other hand, you may live in a property that would benefit from a refurbishment.

Unencumbered remortgage for investment

Generally, investors only purchase with cash instead of a mortgage for one of three reasons.

  1. The deal is time-sensitive and they need to exchange contracts quickly (auction deals)
  2. The property is non-mortgageable as it’s in a state of disrepair
  3. Can resell the property within 6 months (not restricted to the 6-month rule)

By renovating a property, investors can add value and then look to remortgage and release some capital for their next project. If you can afford to purchase a property outright, then this can apply to you.

Buying a property with cash outright would make the property unencumbered. If you wish to rent out the property to tenants or move into the home yourself, then a remortgage may be beneficial. Bear in mind that you may have to wait six months before you’re able to qualify for a mortgage. If you need a mortgage sooner, then do get in touch and an advisor can consult a specialist lender to see what they can offer you.

Residential remortgage

If your home has become rundown over the years, then you should still qualify for an unencumbered mortgage. Qualifying for a mortgage on a habitable home is typically straightforward (subject to other criteria). If the property is uninhabitable, then you will struggle. That being said, there are other options to consider, such as refurbishment and bridging finance.

Even if your home has a problematic kitchen or bathroom, lenders may deem the property uninhabitable and as a result, will decline to give you a mortgage. If you’re not sure, our advisors are on hand to answer any of your mortgage questions.

What if I have credit issues?

If you have bad credit and need a mortgage on an unencumbered home, then it will be difficult, but not impossible! Poor credit certainly limits the options of which lenders you can go to, but there are adverse credit lenders that may consider you.

The more recent your credit issues are, the more difficult mortgages become. Historic credit issues over six years ago, should give you access to some pretty competitive deals.

The type of credit problems will also be a factor in whether or not you’ll be accepted for a mortgage. Late payments and defaults are of course less severe than bankruptcy and repossession.

Learn more about mortgages with bad credit here.

Remortgage an inherited property

Dealing with an inherited property often results in mixed emotions. It can be a difficult time, but the process of transferring ownership of an estate still needs to be carried out.

Inheritance can have complications, such as family disputes or unknown restrictions and charges on an estate. Your solicitor has a legal obligation to represent your best interests during the inheritance process and will make you aware of what you’re legally entitled to do.

If you’ve inherited an unencumbered property, you may wish to remortgage the home to release capital. The capital can then be used to purchase a home for you to live in, whilst the inherited property is put on rent. This is more commonly known as let-to-buy. This isn’t always easy to do, as most lenders want ownership to be at least six months prior to a remortgage.

Despite certain restrictions, our advisors are experts and have access to specialist lenders who will consider circumstances such as these. You can make an enquiry now and an advisor will call you right back.


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About the author

Martin Alexander
Senior Mortgage Advisor | More Articles

Martin is a senior mortgage advisor and has held a CeMAP qualification for over 15 years while also completing an MBA in Global Banking & Finance.