When there is no mortgage on a property – you have repaid any mortgage and own your home outright – it is said to be mortgage-free. The technical term for such a mortgage-free property is an “unencumbered” property – it is unencumbered by any mortgage, loan, charge, or other financial restriction.
Why mortgage an unencumbered property?
If you own your home outright, there is valuable equity locked up in its market value. You might want to release some of this potential to raise extra cash – for any number of reasons, but these might include and are not limited to:
- the funds to renovate, extend or improve your home;
- you plan to move home but want the funds to keep the existing property to let out to tenants; or
- to invest in other property;
- to consolidate debt.
To raise those funds, you have the option of remortgaging your current home. Strictly speaking, of course, a remortgage is the replacement of one mortgage by another one. In this case, however, you have already paid off your mortgage, and your home is mortgage-free. Lenders are still likely to refer to your raising the desired funds through a remortgage – as a new mortgage on your mortgage-free property, or a remortgage of a freehold property.
The TSB, for example, explicitly treats loans on mortgage-free properties as remortgages – with a maximum 80% loan to value (LTV) ratio.
Can I get a mortgage on a mortgage-free property?
The very fact that you are the outright owner of a mortgage-free or unencumbered property immediately puts you in a strong position as far as raising a mortgage loan is concerned.
Whether you bought that property with cash, without the need for a mortgage, or you have already paid off an outstanding mortgage, it shows that you are financially responsible and stable.
Although you may be off to a head start, however, the remortgage of a freehold property is effectively a new mortgage, and any lender will need to conduct the appropriate assessment as to the affordability of the new loan for you.
You have demonstrated a basic level of financial responsibility through owning a mortgage-free property. Still, now the lender needs to assess the affordability of the remortgage in terms of your ongoing income, outgoings, existing debts and loans, the value of the property to be remortgaged, and the loan to value (LTV) the lender may be prepared to offer.
The lender and the reasons for your remortgage
Any lender is also going to consider your reasons for remortgaging. There may be any number of reasons as we discussed above. Whatever your reasons, the lender will want to be reassured that they make financial sense:
- for the purchase of a new car or holiday, for example, a lender may wish to reassurance as to the affordability of such non-essential expenditure;
- if the remortgage is for the extension or improvement of your home, the lender may want to know the estimated capital appreciation likely to result from the works and to be reassured that the property is already entirely habitable – uninhabitable properties may not qualify for a remortgage; or
- if you intend to invest in buy to let property, the lender may be interested in discovering the expected rental yield – which, in turn, helps to determine the affordability of any remortgage of your unencumbered property.
Any remortgage lender also needs to consider the financial standing revealed by your credit history. A less than perfect credit rating is unlikely to be a significant barrier to obtaining a mortgage – but the older any credit issues, the better and relatively minor infractions, such as defaults or late payments, are of course, less serious than re-possessions or bankruptcies.
Register your mortgage-free property
Although it is not immediately related to the possibility of raising a remortgage on an unencumbered property, you might nevertheless want to ensure that your mortgage-free home is registered with the Land Registry Property Alert Service.
Registration ensures that you are notified of any attempt to modify or alter the ownership of the property – risks that have risen through attempts to defraud property owners of substantial sums, according to a report by Today’s Conveyancer.
Finding the most appropriate mortgage-free property remortgage
As you are in a good position in terms of having a mortgage-free home that you wish to borrow upon, you may find that a specialist mortgage broker can highlight those deals that are the most competitively priced for your situation. You can then rest assured that you have the most appropriate remortgage solution for you.