An unencumbered property may not be a term you’re familiar with. Or perhaps you’ve heard of it or an ‘unencumbered mortgage’ but aren’t sure what it means. Either way, you’re not alone. In this blog we’ll dive into the key areas on this topic.
What is an unencumbered mortgage?
There isn’t such a thing as an unencumbered mortgage. When people refer to this, they usually mean they want to take out a mortgage on an unencumbered property. An unencumbered property is one that that is owned outright, with no debt secured against it. As a result, no bank, building society, or other lender or entity has a legal claim on it.
How might you be an unencumbered property owner?
To become an unencumbered property owner, you simply have to own a property outright, without any debt secured against it.
This might be because you’ve paid off any mortgage or other loan you arranged to buy the property. Or, you may have purchased the property outright with cash in the first place. Alternatively, you may have inherited a property that was owned outright by the person who died.
Why might I want a mortgage on an unencumbered property?
Taking out a mortgage on an unencumbered property can enable the owner to ‘release equity’ from the property while still maintaining ownership. People may choose to do this for a few reasons, including:
- Significant family events: where a lump sum of money is needed, such as to provide a home deposit for children.
- Home improvements: to fund renovations, planned maintenance or upgrades to the property.
- Debt consolidation: to combine multiple debts into a single mortgage.
- Unexpected expenses: To cover unforeseen costs that may arise, such as emergency home repairs.
Is this a remortgage or a new mortgage?
The term ‘remortgage’ is used when you already have a mortgage and take out a new mortgage to replace it with a new lender. This can be to get a better rate and/or, raise further funds.
If you raise funds against a property that is unencumbered, this is also treated as a remortgage.
A significant percentage of people who own an unencumbered property are either approaching or already in retirement. Check out our ‘Can you get a mortgage if you are retired?’ blog for lots of useful information, including all the options available, from standard mortgages to equity release.
How much can you borrow?
When you have an unencumbered property, you may be able to borrow a substantial portion of its value if you apply for a mortgage.
Eligibility for such a mortgage will typically involve the same range of standard checks that anyone applying for a mortgage would be assessed against. These include:
- Proof of ownership
- A valuation of the property
- Your credit history
- Length of ownership, as you generally must have owned the property for at least six months
- The loan to value (LTV) ratio
- An assessment of your ability to repay the loan
- What you intend to use the funds for
- Any other policies that your lender asks you to meet.
How to apply for a mortgage on an unencumbered property
Applying for a mortgage on an unencumbered property is much the same as applying for any other kind of remortgage.
If you want to get started today, why not complete our decision in principle form? It only takes around 10 minutes and will give you an idea of how much you could borrow.
