Remortgage of an Unencumbered Property

What is an unencumbered property?

It’s when you own your property outright without any borrowing secured on it – no mortgage or secured loans. It’s owned outright, which is a lovely feeling. It’s not one I’ve got at the moment, but hopefully I will do in due course.

Can you remortgage an unencumbered property?

Yes, absolutely. There’s a number of reasons you might want to remortgage it.

I’ve had a few examples this year where First Time Buyers don’t have a deposit, but their mum and dad’s house is paid for and unencumbered. They want to gift a deposit to their child. We’ve remortgaged unencumbered property to raise money to help the children buy their own property.

I’ve got one at the moment where a client is raising money against his unencumbered property to buy some Buy to Let properties. He wants to have a portfolio of Buy to Let properties and raise the 25% deposit required for each of the ongoing purchases.

The idea is that the rent from the properties will pay his mortgage and be an investment at the same time.

How do I know if I qualify to remortgage an encumbered property?

You would still need an income, whether that’s from being employed, or self-employed as sole trader or company director. You need an income to support the mortgage payments.

Generally, you can’t borrow more than a certain amount. Lenders tend to go up to 90%. So if the house was worth £100,000, you could only go up to £90,000.

Can I remortgage a property in poor condition?

Yes, but there are caveats. I was looking at remortgaging one property and wasn’t aware of its condition when I arranged the remortgage on it. The client didn’t actually have any kitchen units in there. I don’t know how they cooked.

When the lender’s surveyor went round, they said it needed a working kitchen and a working bathroom before they would lend on it. That’s quite a significant thing.

It’s not a regular request, but poor condition can be a good reason for remortgaging. If you needed a new roof on a property, you might remortgage to pay for it. People can remortgage an incumbent property to renovate it.

Can I remortgage an unencumbered property if I’m self-employed?

Yes, absolutely. All you would need is proof of income. You might be a sole trader, in a partnership, or a limited company director. A partnership or sole trader would normally need the last year or two years’ worth of accounts, or your last two years’ tax overviews and tax calculations.

For a limited company director we need the last two years’ dividends and drawings. You would prove that with your tax year overviews and tax calculations. You can remortgage – you just need the documentation to prove your income.