If you own an unencumbered property, either through paying a mortgage, paying for it in full or inheriting it, you’re potentially in a pretty advantageous position if you’re thinking about remortgaging.
This guide answers questions that commonly crop up about raising capital on a mortgage-free property and covers:
How an unencumbered mortgage works
Whether owning a house outright can get you a better remortgage
What lenders look at when deciding if they can approve you
Where you can start your search for a good deal
Getting a mortgage for a property you’ve inherited
Getting a mortgage for a house you own outright with income issues
Where you can go for advice
Remortgage with The Mortgage Hut
Our experts are available 24/7 online or alternatively, make an enquiry and one of our mortgage brokers can call you for an informal chat about your options and what your next steps could look like.
How does an unencumbered mortgage work?
If a homeowner has repaid their mortgage in full or has previously paid for their property outright, they might decide to use the value of their home as security against a new mortgage so that they can release cash or buy another property.
In the unlikely event that they couldn’t keep up with their remortgage repayments, the unencumbered property could be repossessed to settle the debt though this is something that lenders will want to avoid.
That’s why they check the affordability of applicants carefully before approving a request for an unencumbered mortgage.
Is getting an unencumbered mortgage hard?
The process of applying for a mortgage for a property you own outright is similar to that of a mortgage for a completely new property.
However, if you have affordability issues or circumstances that present a risk to the lender such as bad credit or that you’re approaching retirement and a drop in income, it isn’t always straight forward.
That’s where the advice of a mortgage broker can help.
Why would someone remortgage a house they own outright?
Remortgaging a house could allow borrowers to release funds from their property without having to move, perhaps for:
Home improvements
A new car
A holiday
To buy a holiday home
To gift to a first-time buyer in the family
Consolidate debt
Pay for legal fees
That being said, some homeowners remortgage their property via a buy-to-let mortgage for investment purposes but we’ll touch more on this later.
Can I get a better mortgage deal if I own my house outright?
A homeowner with an unencumbered property can present less of a risk to lenders and consequently, remortgaging either on a residential or buy-to-let mortgage could be possible via a range of deals depending on the circumstances of the borrower.
The best deals and lower interest rates are accessible to borrowers that present a low risk of defaulting on their repayments.
Owning a property in full can suggest to banks and lenders that you’re financially responsible given that you would have had to make mortgage repayments on time and in full throughout the course of your previous mortgage agreement.
People who own property without having previously taken out a mortgage could also be looked on favourably too as they can offer a level of security by means of owning 100% equity.
What do lenders look at when deciding whether to approve an unencumbered mortgage?
Most UK banks and lenders will want to establish that you can comfortably repay your new loan, so to check affordability, they’ll likely look at your:
Credit history
Age
Debt-to-income ratio
Income vs outgoings
Stability of income
Number of dependants
The type of property you would like to mortgage
The deals available to you will depend on your circumstances but don’t be dismayed; even applicants with credit issues may be able to get approved for an unencumbered mortgage.
It’s all about finding a lender who can offer affordable terms for you, so even if you’ve been rejected in the past, ask one of our brokers to do a quick search on your behalf to find out what your options are now.
Can I get a buy-to-let mortgage against an unencumbered home?
If you’re planning to invest and become a landlord, perhaps for a second income or for income during retirement, you will likely need a buy-to-let mortgage which can typically require larger amounts of equity to be deposited as the risks associated with this type of lending are greater.
Buy-to-let lenders will usually want at least a 25% deposit and the mortgage rates and fees tend to be higher than those for residential mortgages. If you already own a property outright, some lenders may allow you to use the equity you have built up as a deposit for the BTL mortgage.
That being said, you’ll still need to show the likely rental income on the property, as well as a plan for how you’ll make your repayments in the event of an interest rate rise or you’re unable to find tenants.
I’ve inherited a property, can I get a mortgage for it?
Being gifted property can sometimes leave those on the receiving end feeling a little burdened, especially if it’s in need of repair or a refresh to get it in a place to sell.
Some people who inherit property that has no mortgage left decide to take out a mortgage to finance any improvements and then sell it for a profit, whereas others decide to keep it and use it for rental income.
If you’ve inherited an unencumbered property, remortgaging it could be a fairly simple process subject to eligibility and affordability checks but keep in mind that there are some lenders who prefer the property to have been in your ownership for a minimum of six months.
Where can I get a good deal for an unencumbered mortgage?
Our experts search over 90 lenders on your behalf
They compare the market to find you the best lender
Check your eligibility without affecting your credit score
Unencumbered mortgage FAQs
Our experts have access to specialist lenders that will consider circumstances that other UK banks may not be happy to loan under. Make an enquiry now or read below for more information.
Can I remortgage an unencumbered property if I’m retired?
Later life lending is one of our specialities and we have brokers who work closely with a number of lenders happy to provide a mortgage on unencumbered properties.
Your choice of lenders can be smaller if you’re retired or nearing the age of retirement as lenders may question how you will afford to pay your mortgage repayments on a pension unless it is sufficient enough to cover the amount you want to borrow and your other outgoings.
Equity Release is also an option that many older homeowners consider as many agreements allow their borrowers to make no monthly repayments and instead, repay the debt when the property is sold in the future, upon death or because of a permanent move into care.
It’s a lot to think about and there are many factors to consider if you’re over 60 and want to access cash from your property. Call us for advice or feel free to send us a message with your details and a trained advisor will get right back to you.
Can I get an unencumbered mortgage if I’m self-employed or freelance?
If you work for yourself, your income can be seen as less dependable which can raise concerns for lenders who will be focused on how you’ll make your repayments in the event that you lose work but that’s not to say it’s impossible.
There are lenders in the UK that will provide unencumbered mortgages for freelancers and contracted workers, though they may charge a higher rate of interest versus lenders for workers in permanent employment.
Furthermore, the loan-to-value ratio (the percentage of the properties’ value you can borrow) may be less too, though having an unencumbered property behind you as security can help to reduce the risk of loss to the lender, sometimes allowing you to borrow more under better terms.
Can I get an unencumbered mortgage if I’m on furlough?
The stability of your income will be a key focus and applicants with fluctuating income or an income that has decreased because of a reduction in hours or furlough, can result in some lenders approaching the application with caution.
If you have a contract with your employer with a return-to-work date that is in the near future, some lenders may be more open to approving your unencumbered mortgage application.
If your furlough is due to end soon and you’re unsure about your future employment, your choice of lenders will be reduced and the agreements available to you may be more expensive.
My mortgage is almost paid off, can I remortgage?
If you’re nearing the end of your contract and you own a substantial amount of equity, you could be in a strong place to remortgage. Usually, the more equity you own, the better as this provides more security to the lender.
A broker can calculate your new mortgage repayments with a range of lenders to compare which one would be the most suitable for you, being mindful of any early-exit fees or charges that could affect this.
They’ll contact your current mortgage lender to negotiate a deal and if a better one is found elsewhere, they’ll manage the process on your behalf.
Remortgaging near the end of your contract to access cash is common for many homeowners but it’s still a big decision that could affect your finances for years to come, so take your time, weigh up your options and work with professionals.
Can I get an unencumbered mortgage with a bad credit history?
Having bad credit prevents a lot of people from successfully applying for a remortgage but often it’s the fear of being rejected rather than the lack of lenders available.
Not many people are aware that the severity of your credit issues and the date of when they occurred can influence a lender’s decision to accept you or not.
Some may accept you if there has been a long gap between your last credit incident and now, so if you are thinking of applying for an unencumbered mortgage, avoid missing payments for credit agreements, utility bills and any other financial obligations you have.
Your Mortgage Hut broker can also help you build your credit score to access better rates with helpful tips and advice about Experian Boost.
How to remortgage an unencumbered property
Find a qualified mortgage broker - they should have a Certificate in Mortgage Advice and Practice (CeMAP)
Prepare the documents you’ll need for a mortgage application, including bank statements, identification and proof of income in the form of payslips or tax returns
Find out how much you’re eligible to borrow without affecting your credit score (your own circumstances such as your age, income and even your number of dependants can affect how much you can borrow)
Have your broker compare the lenders and banks in the UK and present you with the best options, all while explaining both the pros and cons of the agreement
If then, you’re happy to proceed with an unencumbered mortgage application, ask your broker to prepare the paperwork and submit it
From there, they’ll manage the process, even chasing up other parties involved with the process to help you meet your completion date
Can I borrow against the home that I own outright?
Let’s find out. Contact a broker today to have your eligibility checked and discuss the pros and cons of each of your options.
Lots of people decide to get a mortgage for a property they already own outright and whatever your reason when you speak to a Mortgage Hut broker, you can feel confident that you’re in the company of a non-judgemental expert, who genuinely enjoys helping.
Call 023 8098 0304 or make an enquiry to request a callback.
