Back-to-back mortgages
How can you get a mortgage for a property that you just purchased outright using cash savings?
What makes someone sell a house that they just bought? There are many legitimate reasons why this could happen. You can find all the details in this guide to back mortgages.
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What is a Back to Back purchase in relation to mortgages?
A property sale and a mortgage deal that occurs within six months from the original purchase is considered a back-to-back purchase. After each change in ownership, the title deeds must be reregistered at the U.K Land Registry. This makes it easy for mortgage lenders to verify when the previous sale occurred (and they will).
Many lenders won’t expect to see a borrower buying a property, then selling it in six months or purchasing a property with cash, and then applying for a mortgage deal. They will request further information about the reason and how this funding request is being made.
What is a sub-sale deal?
Sub-sale transactions are another name for back-to-back purchases. This type of sale can occur in many different circumstances. While some are possible, mortgage lenders may not approve of others.
If someone inherits a property that they no longer need, they can put it up for sale. Most mortgage lenders will accept this if you want to purchase the property within six months.
However, any sub-sale transaction involving an intermediary seller who is looking to make a quick sale and earn a profit would usually see a buyer’s request declined by most mortgage lenders on the mortgage market.
Continue reading to learn more about the 6-month rule when purchasing a property. The next section will look at the various scenarios and show you how, with the assistance of a mortgage broker, you can successfully request a mortgage under these circumstances.
What is the 6-month rule for mortgages?
The U.K. lender should not approve a mortgage application or remortgage request for a property that is less than 6 months after it was purchased.
Although it’s called the 6-month rule, it’s not a law or point of fact. It is a guideline that many lenders use. However, lenders may ignore it in certain situations.
The Council of Mortgage Lenders (CML), introduced this guideline following 2008’s market downturn. It was common for property developers and agents to collaborate, maximising their sales while passing on higher borrowing risk to buyers.
Despite the history of difficulties, lenders are willing to lend money within six months for certain situations, such as:
- Inheritance
- Original cash purchase
- Bridging loans
- Repossessions
- Porting
- Part exchange
Inheritance
If you inherit a property and wish to free some equity, or purchase a property from someone who has recently inherited it, most lenders will accept such mortgage applications.
Original cash purchase
A property that is purchased initially with cash savings, but then a remortgage within six months is required. An example of this would be someone who purchases a property through an auction but then needs funds to renovate it.
Bridging loans
When there has been a delay in the sale of an existing home and, as such, a bridging loan was used to close the deal. This is a reason that lenders consider it feasible for back-to-back lending mortgage deals.
Repossessions
Potential buyers can apply for financing to purchase repossessed properties.
Porting
If you have a deal that expires after six months and the discounted or fixed rates have been transferred to your new property, you can apply for a remortgage from a new lender.
Part Exchange
Most lenders will consider applications for properties that the current owner took on as part of a mortgage deal and is now looking to sell.
It is not as simple as buying a property on a standard mortgage term if it falls under the back-to-back category. An experienced mortgage broker is crucial in this situation.
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Back to back mortgage lenders
Many U.K lenders, including those on the high street, are willing to take Day 1 remortgage application into consideration. “Day 1” doesn’t mean that you must apply within six months of taking ownership. It simply means that they will consider any application regardless of the six-month rule and depending on the circumstances.
Some lenders prefer applicants to reside in the property. An application may be subjected to a maximum LTV based on either the original purchase price or current valuation. Lenders will need to know why lending a mortgage balance is required in all cases.
We will introduce you to a mortgage broker who is familiar with the process and what mortgage lenders are looking for. You should be fine as long as your situation matches the scenario described in the previous section.
Get accepted with a back-to-back mortgage broker
Although back-to-back mortgages can be a niche area of lending, there are many lenders that will consider your application if your circumstances match the lending criteria. The right advisor with experience in this type of lending can make all of the difference.
We can help. Our advisor-matching service will help you find an advisor who is familiar with back-to-back mortgages and which lenders to choose. We can arrange a no-obligation, free call with a mortgage broker that specialises in this area.
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Back to back mortgages FAQ
If a relative has loaned me money to purchase a house, can I get a back-to-back mortgage?
The situation would still be considered an ‘original cash purchase’, so lenders will likely take a look at it. Your broker will be able to guide you through the process if you provide the details of how you purchased the property.
If I move and transfer my discount rate mortgage, do I need to remain on a variable rate for six more months?
Non. This would be considered a “porting” category, which allows you to apply for a mortgage with a different provider if needed. We will introduce you to a mortgage broker who can help you navigate through the available deals so that you can find one that fits you.
What is the process of getting a second mortgage?
This is where a loan secured by the property is taken from another source than the original lender.
The priority of the second lender is second to that of the first. If the property is ever sold, the first lender will be the first to have equity.
Failure to repay monthly payments on an outstanding mortgage secured on your property could result in your property being forfeited.
What is the maximum amount I can borrow for a second mortgage?
The amount of equity in your home will determine the maximum second mortgage that you can obtain.
A second mortgage lets you use the equity in your home as security for another loan.
This means that you will have two mortgages on the property.
Equity refers to the amount of your property that you own, which is the total value of the home less any mortgages. There will be a range in the amount that a lender will let you borrow. You can get an idea of how much you can borrow by using up to 75% equity from your home.
Is it possible to get a second mortgage?
Lenders must adhere to rules that allow for affordable lending.
Lenders must conduct the same affordability checks as residential mortgage applicants and stress test your ability to pay future mortgage payments.
Why would you take out a second mortgage when you can get the first one?
A second mortgage can be taken out for many reasons:
- You may be unable to obtain a form of unsecured borrowing, such as a personal loan.
- Remortgaging to a second mortgage to pay your house loan and a further loan to cover it could lead to you paying more interest rates. You would pay the additional interest and higher monthly repayments for the second mortgage you take out.
- A second mortgage with lower early repayment charges than your existing mortgage might be a better option.
Your personal circumstances will determine the suitability of these examples. If you are current on your mortgage payments, it is worth looking into a loan extension from your existing lender with better terms.
Before you apply for a second mortgage, here are some things to keep in mind
Before you apply for a second mortgage, make sure you check first if you are eligible for a higher advance on your existing mortgage. Also, get advice from a qualified advisor.
They will be able to help you find the right loan for your financial needs.
When dealing with you, they will have to adhere to the Financial Conduct Authority’s (FCA) rules. These rules are intended to protect you.
You run the risk of getting a loan that is not right for you if you don’t seek formal advice. It might be difficult to file a complaint if this happens.
If you are looking for a second mortgage, you should:
- Compare rates and terms to ensure you are getting the best deal.
- Find out about the mortgage terms, fees and interest rates.
Contact us and our specialist mortgage brokers today to do the hard work for you.