Being mortgage free or having a property outright is a big financial advantage. An unencumbered property – one with no outstanding loans or debts – gives you the opportunity to raise funds for all sorts of things. Whether it’s for home improvements, debt consolidation or another property purchase, this guide will show you how to get the most out of your unencumbered home.
1. What is an Unencumbered Property?
An unencumbered property is a home or building with no mortgage or outstanding debts. Homeowners who have paid off their mortgage, inherited a property or bought their home outright fall into this category. So you own the home outright and have full equity to play with to raise capital.
2. Why Raise Finance with an Unencumbered Property?
There are many reasons to release equity from an unencumbered property:
- Home Improvements: Renovate or upgrade your property to increase its value.
- Debt Consolidation: Consolidate multiple debts into one payment with lower monthly payments.
- Property Purchase: Fund a buy-to-let mortgage, holiday home or another property purchase.
- Raising Capital: Access funds for business investments or other financial opportunities.
3. How to Raise Finance with an Unencumbered Property
Homeowners can access funds through:
Remortgage an Unencumbered Property
An unencumbered remortgage allows you to take out a new mortgage on the property’s value. With no existing mortgage, lenders are often more competitive. This is a good option if you need to raise significant funds with manageable monthly mortgage payments.
Unencumbered Mortgage
You can apply for an unencumbered mortgage to borrow against the property’s value. Unencumbered mortgage lenders will assess your loan to value ratio (LTV) to see how much you can borrow. Most lenders will lend up to 75-85% of the property’s value depending on your credit history and employment status.
Secured Loans
A secured loan uses your unencumbered property as security. This is good for raising capital and spreading payments over a longer term. It’s particularly useful for homeowners with bad credit or adverse credit as the property reduces the lenders risk.
Equity Release
For homeowners 55 or older, equity release options like lifetime mortgages allow you to unlock the cash trapped in your mortgage free home. This is often used for retirement planning and to access funds without monthly repayments.
Bridging Loans
A bridging loan is short term finance for when you need quick access to funds for a property purchase or to cover a cash flow gap.
4. Eligibility Criteria
Even with an unencumbered property, lenders will look at the following during your application:
- Credit History: Missed payments or bad credit history may limit your options but won’t rule you out completely.
- Employment Status: Most lenders require proof of stable income whether you’re employed, self employed or receiving rental income.
- Financial Obligations: Outstanding debts such as a personal loan or other debts will be considered.
- Bank Statements: These are required to prove financial stability and affordability for monthly payments.
5. Benefits of Raising Finance with an Unencumbered Property
- Lower Monthly Payments: Competitive rates and flexible terms to reduce the financial burden.
- Financial Security: Use your property to achieve your financial goals without affecting your day to day cash flow.
- Flexibility: Choose from a range of lending products to suit you.
- Consolidate Debts: Combine multiple debts into one repayment.
6. Considerations
While an unencumbered property mortgage has many benefits, you should approach finance with caution. Consider:
- Interest Rates: These can be very different depending on the product and lender.
- Financial Obligations: Can you afford the monthly repayments without financial stress?
- Eligibility: Specialist lenders may be better for those with unusual circumstances such as bad credit or self employment.
7. Get Advice
The mortgage market and choosing the right product can be confusing. Get professional advice from a mortgage broker and you’ll understand all your options and get the best deal for your situation. A broker can connect you with specialist lenders or mainstream lenders depending on your needs.
8. Using an Unencumbered Property for Buy-to-Let Investments
If you want to expand your wealth, using an unencumbered property to fund a buy-to-let mortgage can be a great option. Lenders see mortgage free properties as a lower risk asset so you can get competitive mortgage deals to buy a rental property. By using rental income you can cover your monthly mortgage repayments and build long term equity.
9. Finance for an Inherited Property
Having an inherited property outright can give you opportunities to raise capital. Whether you need funds for renovations, legal fees or to divide the estate among beneficiaries, an unencumbered mortgage is a way to access the property’s value. Specialist lenders can offer flexible terms to suit your situation so you can unlock the property’s potential.
10. Consolidate Other Debts
If you’re a homeowner with other debts such as credit cards or personal loans, consolidating them into one manageable repayment using an unencumbered property mortgage can be a relief. This often comes with lower monthly payments than unsecured debt so you can get back on your feet and simplify your financial obligations.
11. Options for Homeowners with Bad Credit
If you have bad credit or a bad credit history, you can still raise finance with an unencumbered property. Specialist lenders cater for those with credit issues, offering solutions that aren’t available from mainstream lenders. While interest rates may be higher, using your house as security can give you the opportunity to rebuild your credit over time.
12. Planning for a Holiday Home
Raising funds from a mortgage free property is a great way to buy a holiday home. Whether it’s a countryside retreat or a beachfront villa, an unencumbered remortgage or secured loan can provide the finance to achieve your dream. This way you can keep your financial stability and enjoy the benefits of a second property.
13. Getting a New Mortgage as a Self-Employed
Self employed individuals often struggle to get traditional loans due to irregular income. But an unencumbered property can be an asset to get a new mortgage. Lenders will see the property as security so they are more likely to approve your application even with non-traditional income streams.
14. What is the Loan-to-Value Ratio (LTV)
When applying for an unencumbered mortgage the loan-to-value ratio is crucial. This is the percentage of your property’s value you can borrow. For example if your property is worth £300,000 and the LTV is 80% you can borrow up to £240,000. Understanding this will help you set realistic expectations and choose the right product for you.
15. Interest Rates to Consider
When raising finance interest rates are key to consider. Secured loans and unencumbered mortgages are generally lower than unsecured borrowing but rates will vary depending on your lender and financial situation. Compare offers from specialist lenders and mortgage providers to get the best deal.
16. Prepare for the Application Process
A successful unencumbered mortgage application requires preparation. Lenders may ask for bank statements, proof of income and employment status. Make sure your documentation is complete and accurate to speed up the process and get the best rates.
Conclusion
Leveraging an unencumbered property is a powerful way to unlock funds for a range of needs, from home improvements to debt consolidation or investments. With the right approach, you can secure a financial product that aligns with your goals while maintaining financial stability.
If you’re considering raising finance with your unencumbered property, Eden Hawk Financial Solutions is here to help. With extensive experience in the mortgage market, Eden Hawk specializes in tailored mortgage advice to guide you through the process. Whether you’re looking to release cash or manage other financial obligations, Eden Hawk can connect you with the best mortgage deals. Contact them today for expert assistance!
