What does an unencumbered property mean?

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Annexes are part of homes that often offer spacious living quarters and the opportun

In this article, we will be going over what an unencumbered property means. The strange term brings forth a lot of questions including if you can get a mortgage on a property that is unencumbered and how to qualify for one.

Essentially, an unencumbered property is just a property you own without a mortgage or any type of debt leveraged against it. But there are various nuances you should understand about the topic.

le, we will be going over all you need to know concerning annexes so you can buy one and have all the information necessary to not make a detrimental mistake.

From how to find the right type of property with an annexe to the advantages and disadvantages of buying a house with an annexe, we cover it all. So, read on if you’re interested in making the right decision.

paying off the mortgage in an unencumbered property

What is an unencumbered property?

When you own a property with no mortgage or loans secured against it, you have what’s called an unencumbered property. 

It means that you have complete ownership of the property and there are no debts or financial commitments that need to be paid off before you can sell it or transfer ownership. 

It’s a great position to be in, as it can make buying another property or securing a loan much easier.

If the property is unencumbered, can you get a mortgage on it?

It is possible to obtain a mortgage on a property that you own outright and that has no mortgage or loans secured against it. In fact, it may put you in a good position to get a mortgage as borrowing against your home can help you release equity.

This is known as a let to buy if you are renting the property and a remortgage if you are still living in the property but want to take some equity out of the deal.

However, just because you own a property that is unencumbered, it doesn’t mean that you will necessarily have an easy time trying to add a mortgage to it as you’ll still have to pass an affordability test before you’re approved for more debt.

Consider taking out a small mortgage if you want to keep your mortgage rates as low as possible. This will allow you to keep more of your home’s equity so you don’t have to pay off your mortgage for years as if you were buying a property from scratch.

The fact that you have an unencumbered property is already a great achievement and going through the same level of stress and stretching yourself financially may not be what you want to in order to move forward.

This is because if you require a larger mortgage, you will have less equity in your home and mortgage rates will be higher and the amount you have to pay back will increase, requiring you to earn more for a longer period of time.

What is the meaning of an unencumbered mortgage?

So, you want to add a mortgage to a home that is unencumbered but is the meaning of an unencumbered exactly? The answer is simply a mortgage that you take out on an unencumbered property and there really is nothing more to it. 

Homeowners may consider this for a variety of reasons, such as relocating but keeping their existing property to rent out, or requiring a lump sum for home improvements or the purchase of an investment property.

If you’re not sure about this or if you want to do it but you don’t yet own your home outright then you may find that it is easier to focus on paying off your mortgage and focus on one thing at a time.

Being able to pay off the mortgage takes a while in most cases and by the time you’ve done this you may find your life circumstances have changed significantly.

a sold unencumbered property

What are the requirements for an unencumbered mortgage?

Getting a mortgage on a property that you own outright is no different than getting any other type of mortgage. Lenders will continue to evaluate your income, affordability, outstanding debts, and Loan to Value (LTV) ratio. 

Furthermore, the type of property you’re remortgaging for, whether residential or buy-to-let, is a significant factor that lenders will consider as if the property is a higher value property it may bring additional risk.

It’s important to note that your employment status will have an impact on the deals you’re eligible for, and there are numerous factors to consider just as if you were applying for a normal residential mortgage

If you find this process confusing or aren’t sure about any of the terms listed then it is a good idea to consult the advice of a mortgage broker to clear things up and make sure you’re getting a good deal.

If you have bad credit, is it possible to get an unencumbered mortgage?

Obtaining a mortgage on an unencumbered home with bad credit may appear difficult, but it is not impossible. Although it will limit your options, there are still lenders who will consider you if you have bad credit. 

The more recent your credit issues, however, the more difficult it will be to obtain a mortgage but if you had credit problems more than six years ago, you may be able to get more competitive deals. 

Lenders will also take into account the severity of your credit problems, with late payments and defaults being less severe than bankruptcy and repossession.

So all in all, this question is extremely difficult to answer as your individual situation will determine the outcome of if you can get an unencumbered mortgage if you have bad credit.

Having said this, try  not to overcomplicate the issue, having bad credit and applying to an unencumbered mortgage is just the same thing as taking on any debt and you have to show that you are a good money manager, pay off your debts and are a functional member of society.

For more on how this works, read our article on credit scores and read more on the experian website here will be able to tell you what youtube credit score is once you sign up.

What are the best unencumbered mortgage lenders

In general, going back to the same lender that you originally paid off your mortgage with to obtain an unencumbered property would be a good idea. Whether the original mortgage was a 95% mortgage for a mortgage with a guarantor, it doesn’t matter.

If you do this, they may trust you more because you already have shown that you are able to sensibly pay off a the time for the mortgage application process will likely be quicker as they have all your information already.

Being able to benefit from perks such as taking out a mortgage without payslips

However, if not, there are numerous lenders who can provide you with a suitable deal if you are looking for a mortgage on an unencumbered property. You should be able to find a provider or rate that works well for you because the lender is taking on less risk. 

This may imply that you find what you need through a high-street lender such as Barclays, HSBC, Santander, or Virgin Money, but there are also specialist lenders who may offer even better deals. 

Just make sure to thoroughly research and compare your options before making a decision.

a single unencumbered property

Should you take out a new mortgage or remortgage?

You can’t remortgage a property that doesn’t have a mortgage, but the process is similar to getting a mortgage. Some lenders will treat it as a remortgage, while others will treat it as a new purchase. 

Regardless, you’ll have plenty of options to choose from. Being mortgage-free or owning a property outright demonstrates to lenders that you are financially responsible, which can make obtaining a mortgage easier. 

So to put things simply, it doesn’t matter if you ask a lender for a remortgage or for a new mortgage. The process is generally the same, as the lender will advise you on the best product to take money out of your home.

Is it a good idea to remortgage an unencumbered property?

It is useful to note that you can’t remortgage a property that doesn’t have a mortgage.

Some lenders will treat it as a remortgage, while others will treat it as a new purchase but regardless, you’ll have plenty of options to choose from. 

Whether you are mortgage-free or you own a property outright, it demonstrates to lenders that you are financially responsible, which can make obtaining a mortgage easier. To begin, you can call or send an inquiry to us for personal assistance.

Should you remortgage an inherited property?

You are in a financially strong position to own your property outright. However, depending on your specific circumstances, taking out a mortgage may still be advantageous. This is known as a remortgage.

But before you dive in, there are a few things you should think about including considering why you want to take out a mortgage in the first place. 

Perhaps you want to invest in a buy-to-let property, make home improvements, or simply treat yourself to a new car or vacation. Whatever your motivation, it is critical that it is a financially sound investment.

Next, think about the new financial commitment you’ll be making. You’re used to not having a mortgage payment, so it will be a lifestyle change to start affording new payments.

Although lenders will consider your affordability, you must ensure that you are comfortable with the new financial obligations you’re making and understand that the mortgage you take on the harder it will be to pay off.

It’s also important to remember that getting a mortgage involves some risk. Your home is secure, but failing to make payments on time may result in repossession which would mean you lose money and potentially your home so make sure you’re aware of the dangers.

Finally, consider your debt situation. If you have a lot of debt already, an unencumbered mortgage may not be the best option for you. But having said this, there are specialist remortgages available if you need to raise capital for debt consolidation.

Remember, you can always send us an email or call us to get tailored advice for your specific situation.

a house that is an unencumbered property

Is it possible to remortgage a property in bad condition?

While there are some challenges involved with remortgaging a property that is in bad condition, it can be done and you can end up with a mortgage that is affordable and allows you to pull out equity and reinvest or use the money for other things.

Most of the time, it is best to find out how you can add value to the property before you remove orders as this will bring the value of it up and raise the amount of money you can qualify for so this is often recommended.

Nonetheless, if you don’t want to go down the route of adding value to the property in the form of a renovation, you could also find a specialist lender who works with properties in bad condition and are more likely to approve an application.

Another option is looking at a secured loan instead of a mortgage which prevents you from having to remortgage a property. It is useful to note that this method is a lot riskier as a secure loan has to be paid back in a shorter time frame.

For more on how secure loans work, click here.

How to invest with an unencumbered remortgage

Investors frequently choose to pay cash for a property rather than obtain a mortgage for one of three reasons. For starters, they may need to exchange contracts quickly due to time-sensitive transactions such as auctions. 

Second, because the property is in disrepair, it may not be mortgageable and they may be able to resell the property without any restrictions within six months.

Investors can increase the value of a property by renovating it and then remortgaging to free up capital for their next project. If you have the means to buy a home outright, you could benefit from this strategy as well.

When you pay cash for a property, it becomes completely owned and it is in your name. Then you can rent it out or move in, and a remortgage may be an option.

Keep in mind, however, that you may have to wait six months before you are eligible for a mortgage but if you need a mortgage right away, you can speak with an advisor who can help you find a specialist lender who may be able to help you.

What is an unencumbered residential remortgage

If your home is in disrepair or has deteriorated over time, you may still be able to obtain an unencumbered mortgage.

Qualifying for a mortgage on a habitable property is typically a relatively simple process, subject to other criteria. However, if the property is uninhabitable, it may be difficult to obtain approval. Fortunately, there are other options to consider, such as renovation and bridge financing.

Some lenders may classify your home as uninhabitable even if it only has kitchen or bathroom issues. This could result in the denial of a mortgage application. If you are unsure about your eligibility, you can speak with one of our mortgage advisors, who are always available to answer your questions.

office in an unencumbered property

To summarise

Whether you choose to deal with an unencumbered property or not is up to you but you should make sure you are aware of the rules around section 24 if planning to remortgage. 

Also, get familiar with all mortgage terms such as mortgage capacity reports and potentially getting a mortgage without payslips as this will ensure you’re able to deal with unencumbered properties correctly as a buyer

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donnell-bailey

Donnell Bailey

Property expert

Donnell is a property expert focusing on the property market, he looks at a combination of legislation, information from property managers, letting agents and market trends to produce information to help landlords.

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