Mortgage Advisor & Director
Mortgage Advisor & Director
If you own a property outright with no outstanding mortgage, you have the flexibility to release equity for home improvements, to buy another property, or to fund other opportunities. Here we’ll explain the meaning of an unencumbered mortgage, what this type of borrowing can offer, and where to find the best lenders and rates.
What is an unencumbered property?
This is a type of property that’s owned outright and no longer has a loan secured against it. Essentially, an unencumbered property is one that’s mortgage-free and free of any financial or legal claims, making it an attractive debt-free asset.
What is an unencumbered mortgage?
An unencumbered mortgage lets you borrow against an unencumbered property by using it as security to release equity or access funds. It’s similar in some ways to remortgaging or refinancing a property, except that there’s no outstanding money owed if it’s unencumbered.
You might be in this situation if you’ve paid off a mortgage, inherited or been gifted a mortgage-free property. Because unencumbered properties aren’t tied down with debt, getting a loan can be more straightforward. So, you’ll have plenty of options, but you’ll still need to pass the usual checks and affordability assessments.
Lending criteria for unencumbered properties
Most of the eligibility criteria will be similar to a standard UK mortgage, but with slightly more emphasis placed on specific areas. Here are some of the key factors lenders will look at when it comes to mortgages on unencumbered properties:
- Proof of ownership: Lenders will want adequate proof you own the property, which could be a copy of the title deed. Some lenders may also want confirmation there’s no outstanding mortgage (or charges), and the property has been unencumbered for a certain amount of time, usually 6 months.
- Property valuation: Lenders will get a current valuation to estimate how much the property is worth. This will allow them to work out your loan-to-value (LTV) ratio by calculating how much you want to borrow compared to the property’s value.
- Purpose of the loan: You might want to access funds for various reasons like home renovations, repairs, debt consolidation, paying for higher education, accessing extra cash, or even leveraging the property to invest or buy another house. Each lender will have preferences around what you’re using an unencumbered mortgage for.
- Credit history: Lenders will check your credit history to make a risk-based decision. Don’t worry if you happen to have bad credit, it’s usually still possible to get a loan because you’re using a high-value unencumbered property as security to borrow, but specific types of adverse credit might still put some lenders off or mean lower rates.
- Income and age: Lenders will carry out an affordability assessment, like with a regular mortgage, to ensure you’ve got an adequate level of income to keep up with repayments. Your age can be a factor for some lenders, so if you’re near retirement or already retired, you may need a shorter loan term.
How to get a mortgage on an unencumbered property
Getting an unencumbered mortgage can be similar to a standard mortgage. So, depending on your situation, you’ve got a few options. The recommended route usually involves speaking with an experienced broker, as it's often the best way to get top rates, especially if your circumstances are even slightly complex.
However, if your situation is more straightforward, you can gather all your personal documents (proof of address, ID, and 3 months of payslips and bank statements) along with your property ownership details and credit reports. If everything is in order, you can start comparing rates yourself.
You can compare unencumbered mortgage rates for free on Teito. Select the 'Choose Your Own Mortgage' option below to browse rates from 90+ lenders in real-time, or select 'Speak To An Adviser' if you’d like specialist advice first:
Find a better mortgage deal on Teito
How much can you borrow?
Calculating how much you can borrow for an unencumbered mortgage will largely be based on the value of the property you own. Lenders will calculate how much you want to borrow compared to the property’s value, which results in your LTV ratio.
Some lenders may have maximum LTVs of 85% or 90%, but it depends. If you want to borrow a large amount with a high LTV, then your income can play a more important role in the decision. Typically, the strength of your whole application (including credit history and loan purpose) will influence how much you can borrow.
The amount you are borrowing will also need to be no more than 4.5 times your annual salary in most cases, although some lenders will stretch to 5-6 times income.
Use our affordability calculator below to get an idea of your maximum borrowing.
Unencumbered mortgage lenders
Most high-street lenders such as Santander, Halifax, Nationwide, NatWest, and others will be open to offering mortgages on unencumbered properties. This is because it can sometimes be a lower-risk lending option for them.
However, it’s worth keeping in mind that to get the best rates for an unencumbered mortgage, you’ll be better off approaching specialist lenders. These lenders are usually the preferable unencumbered mortgage providers in the UK because often, they’re more flexible with rates, terms, and how much you can borrow.
You can compare rates yourself to get an idea, but usually, it’s best to get support and advice from an experienced broker who specialises in unencumbered properties because they can help find a solution tailored to your circumstances.
Can you get a buy-to-let mortgage on an unencumbered property?
Yes, most lenders would be open to offering buy-to-let (BTL) mortgages for unencumbered properties. However, the eligibility criteria will usually be different. Sometimes, there will be stricter LTV caps and a greater focus on potential rental income rather than your personal income.
The majority of lenders require a rental income of around 125% to 145% of the monthly mortgage payments, but it’s worth discussing your property investment plans with an experienced BTL mortgage adviser to see what your options are.
Why choose Teito for your unencumbered mortgage
As a whole-of-market mortgage brokerage, our advisors can find you the best deals and rates for your unencumbered property, regardless of your circumstances and property valuation.
Whether you want to maximise how much you can borrow or simply secure the best terms, we can help you find the right solution for your situation and financial goals.
Here are some more of the reasons people choose us to find them an unencumbered mortgage:
- You can compare unencumbered mortgage rates and deals online for free
- We can introduce you to specialist lenders with exclusive rates
- Our mortgage brokers are 5-star rated on leading review sites
- Your first chat is free, with no obligation to proceed
Ready to compare rates for free and take advantage of a free, no-obligation chat with a broker who specialises in unencumbered property mortgages? Get started here.
FAQs
No, most lenders will actually offer better rates because lending against an unencumbered property can involve less risk for them. However, this isn’t always the case so it’s important to approach the right lender for your property and situation.
Choosing an Adviser
Selecting a qualified and experienced mortgage adviser is of great importance. To choose a suitable adviser, evaluate their qualifications, experience, and reputation, and ensure they are regulated by the Financial Conduct Authority (FCA).
Read reviews from previous clients and make sure they provide a clear explanation of the products and services they offer, as well as the fees and charges associated with them.