Can I borrow against a property with no mortgage?

12-March-2019 19:27
in General
by Jennifer Stevenson

Are you in the happy position of owning your home (or an investment property) outright: you bought with cash, or you’ve fully paid off your mortgage. And now you want to raise some money against the property – to fund another property purchase, or pay for some renovations?

Being mortgage-free, sitting on top of 100% of the value of your home, should put you in a handsome position as a prospective borrower. But, perversely, a couple of the most obvious funding routes – a mortgage extension, or a second-charge loan – aren’t available to you.

A few years ago you might have found it difficult to get access to funds in this situation.

But a Restart Mortgage - also known as a Mini Mortgage, Unencumbered Mortgage, or Unencumbered Remortgage - may be the finance vehicle you need if you want to take out a loan against a property you already own debt-free.

How could a Restart Mortgage help me?

  • We want to borrow more than the £25K we could borrow as personal loan
  • Our current home could take a while to sell, and we want to be able to move quickly on the property we buy
  • Now we’re mortgage-free we can afford to do some long-delayed home improvements
  • We want to sell our house but need a lump sum to carry out refurbishments to get the maximum price
  • We want to buy a rental property
  • We want to buy a holiday home
  • We want to move house but keep our current home as a rental property

The mortgage extension option

If you already have a mortgage, extending your borrowing (getting a “further advance”) is usually quite quick and painless if you meet the affordability and LTV criteria. It avoids the fees of a remortgage, and the extension can be approved the same day, with the money in your account in 10 days.

There may be a valuation fee, and the additional borrowing is usually charged at a higher rate than a current mortgage (though lower than the cost of a personal loan).

But… if you don’t already have a mortgage, you can’t extend it.

The second-charge mortgage option

Equally straightforward to set up, if an original (“first charge”) mortgage holder agrees to it. Again, it avoids remortgage costs, though there may be a valuation fee, and the interest rate will be at a higher than for a first charge mortgage. But these lenders may be more lenient about a chequered credit record.

Second-charge lenders are able to assume that the primary mortgage lender has already done most of the heavy-lifting in terms of establishing the value of the property, and your viability as a borrower.

But again - not an option for you, if you don’t have a first-charge loan.

Advantages of a Restart Mortgage

Finance products were needed that recognised your particular needs - and advantages. Hence the start-again mortgage on an unencumbered property, which can give you:

  • Access to more lending (up to £250K) than a personal loan (usual limit around £25K)
  • Lenders willing to offer their Purchase Mortgage rates instead of their Remortgage rates
  • Cheaper borrowing than a personal loan because the repayment costs are spread out over a mortgage timescale: 10 to 15 years, or longer
  • Flexible borrowing: unlike most mortgage extensions or second charge mortgages, there are Restart Mortgage lenders with no early repayment charges (ERCs) – meaning you can take advantage of the lower monthly payments on a mortgage timescale (above) but repay the whole mortgage as soon as, for example, a property is sold
  • Lenders may not require a minimum credit score
  • It can be arranged quickly
  • Some lenders may not require proof of buildings insurance, and don’t place restrictions on property construction (they’re willing to lend on timber or steel-framed buildings, for example, or thatched cottages)

How much can I borrow with a Restart Mortgage?

Your unencumbered property can earn you borrowing up to 75% of the assessed value of the property: that’s £337,500 you can access (minus fees) on a property worth £450K.

There’s usually a minimum property value of £100K.

How much will a Restart Mortgage cost?

Most of these loans are available only on Capital Repayment terms.

Current interest rates range from 4.4% over base rate for borrowing of up to £250K with 50% LTV on a BoE lifetime tracker, to 8.4% over base rate for borrowing from £5-£100K at 75% LTV.

There are Restart lenders who don’t charge application fees, who don’t require that you pay for your own legal advice, and who won’t hit you with an early repayment charge (ERC).

You may need to pay a standard Deeds Release fee when you repay the mortgage of £125.

Valuation fees: some lenders may speed up the application process and keep borrower costs down by using a low-cost desktop "automated valuation"(AVM) when they’re looking to lend a up to £50K at a maximum 30% LTV against properties valued up to £500K. Or a "drive-by" valuation for loans of up to £100K, up to 75% LTV.

When it comes to being clear about exactly how much it will cost you to get back into the world of mortgage-paying, whether it’s the most appropriate form of borrowing for you, and whether you can afford it, help from an experienced property finance broker (such as Clifton Private Finance) could prove to be well worth a modest broker’s fee if we can set up finance for you.

What can I get an unencumbered mortgage for?

It’s possible to source this type of lending for any type of building construction.

Nearly all lenders are willing to loan against the value of your property if you want to do renovations or improvements to that property.

Some may not consider lending for the purpose of debt consolidation or business investment. 

We can find you a Restart Mortgage lender who will lend for any legal purpose except business start-up or avoiding bankruptcy.

Do I need to be employed to get a Restart Mortgage?

Short answer – no.

It’s quite likely that prospective borrowers who have paid off their mortgages will be at retirement age. Most lenders in this market are willing to look at borrowers who have an income of £15,000 a year (or more), but it can come from a pension or self-employed earnings as well as paid employment.

Lenders may also be willing to consider payments from Working Family Tax Credit and Child Benefit, so long as you can show a total of £25,000 in income.

Find the right finance for your circumstances

If you haven’t had mortgage payments to keep up with, this could come as a shock on your monthly budget. An experienced property finance broker can walk you through your options, and will demonstrate the comparative costings. Call us to arrange a convenient time to discuss your circumstances in detail:

0203 900 4322 

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