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Unencumbered mortgage

Last updated on 9th February 2024 by Martin Alexander

If you own a property outright and want to remortgage, you’ll likely 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 than buying a new property.

Although an unencumbered mortgage tends to be a simple process, you shouldn’t rush into it. There are many factors to consider, such as the new financial commitment of having a mortgage. If you wish to remortgage your unencumbered home, you’ll want to be sure 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 can repay the mortgage.

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

What is an unencumbered mortgage?

Let’s explain what the term ‘unencumbered’ means in the mortgage world. An unencumbered property is a mortgage-free property that is free of loans, charges, and restrictions. It is unencumbered if you’ve paid off your entire mortgage or purchased it outright with cash.

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 several reasons. You may want to move home but keep your existing property to rent out. Alternatively, you may need a lump sum for 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 isn’t easy to list each scenario here, as the variables are endless. Our advisors can answer your questions and search the entire market for the best possible deal.

Owning an unencumbered home should give you access to some great deals. Most lenders will treat this as a new purchase rather than a remortgage, but you’ll have much more flexibility as you own the home.

Do I need a new mortgage or a remortgage?

Technically, a remortgage replaces an existing mortgage 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.

Should I remortgage a house I own outright?

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

Raising capital on a mortgage-free property also carries risks that need careful consideration.

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 crucial 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, so 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 – An unencumbered mortgage may not be the best idea if you’re in debt. Nonetheless, it does depend on your circumstances. If you need to raise capital due to debt, there are specialist remortgages for debt consolidation.

Can I remortgage a property in bad condition?

It’s quite common for investors to buy rundown properties for cash, to 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 six months (not restricted to the six-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, this can apply to you.

Buying a property with cash outright would make it unencumbered. However, if you wish to rent the property to tenants or move into the home yourself, a remortgage may be beneficial. Remember that you may have to wait six months before qualifying for a mortgage. If you need a mortgage sooner, 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, 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, other options exist, such as refurbishment and bridging finance.

Even if your home has a problematic kitchen or bathroom, lenders may deem the property uninhabitable and decline to give you a mortgage. Our advisors can answer any of your mortgage questions if you’re unsure.

What if I have credit issues?

If you have bad credit and need a mortgage on an unencumbered home, it will be difficult but not impossible! Poor credit certainly limits your choice of lenders, but some may still 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 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 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 is legally obligated 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 while the inherited property is rented. This is more commonly known as let-to-buy. This isn’t always easy, as most lenders want ownership to be at least six months before remortgaging.

About the author

Martin Alexander
Senior Mortgage Advisor

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