How To Get An Unencumbered Mortgage

What is an unencumbered mortgage? 

An unencumbered mortgage allows you to release equity on a property you own outright. The term ‘unencumbered’ means to be free of any burden or impediment. In mortgage terms, an unencumbered mortgage is taken out on a property you own which is currently free of any debt liability. 

Why would you need an unencumbered mortgage? 

An unencumbered property is one in which you own 100% of the equity, either because you’ve already paid off your mortgage, bought with cash originally or inherited. This puts you in a strong position to release a lump sum of money from the equity in your property for a host of reasons, such as: 

• Home renovations

• To buy another property outright or to use as a deposit

• Consolidate other debts (bank loans, credit cards, etc.)

• To buy a new car or dream holiday

• To help a family member financially

How is an unencumbered mortgage different to a standard mortgage or remortgage?

An unencumbered mortgage can only be used on a property you own outright, whereas a standard residential mortgage is used to help buy a property you don’t yet own, and a remortgage is where you switch your existing mortgage to a new lender. 

Strictly speaking, an unencumbered mortgage is a new mortgage, albeit taken out on a property you already own, rather than a remortgage. However, as it involves raising equity, some lenders refer to it as an unencumbered remortgage, but it amounts to the same thing.

How much can you borrow for an unencumbered mortgage?

This will vary from lender to lender. Most mortgage lenders will use a multiple of your income - usually between 4x and 4.5x annual earnings - when considering how much you can borrow for an unencumbered mortgage. 

So, for example, if your total annual household income is equal to £50,000 and a lender uses an income multiple of 4x to work out the maximum borrowing allowed, this means you could borrow up to £200,000 (4 x £50,000 = £200,000). 

It’s possible you could borrow up to 95% of the value of your property with some specialist lenders, depending on the overall strength of your application. It’s worth remembering that the lower your overall loan-to-value (LTV) is, the better interest rates will be available. 

For a quick snapshot of how this could work out, you can use our mortgage repayment calculator. 

Do you need a deposit?

No, you don’t. As you already own the property outright, mortgage lenders will deem the fact you have 100% equity available as sufficient and will calculate how much you can borrow versus their maximum borrowing criteria. 

The best way to find out how much you can borrow for an unencumbered mortgage is to first apply for a decision-in-principle (DIP). If you get in touch with us, we can arrange for one of our Mortgage Experts to contact you and start the process. They should be able to ascertain a DIP from a mortgage lender within 24 hours.  

Unencumbered mortgage eligibility criteria 

The application process for an unencumbered mortgage is similar to a new mortgage or a remortgage. You’ll need to pass a mortgage affordability assessment to prove you can comfortably afford the repayments along with the mortgage lender’s other eligibility criteria, which includes reviewing: 

• Your employment status. If you’ve been employed for several years (3 years+), your monthly payslips will be able to provide sufficient proof of earnings. If you're self-employed, you’ll need your last three years certified accounts or SA302 tax calculations. 

• Your income and outgoings. A lender will want to know how much you spend each month to confirm you have enough disposable income to cover the mortgage repayments. 

• Your credit history. A mortgage lender will review your credit record to understand how you’ve managed your finances and to establish whether any bad credit issues have been registered against your name. 

• Your age. If you’re approaching retirement age, a mortgage lender will want to know if you can still afford the repayments once you begin claiming your pension. If not, the lender may request a shorter mortgage term to ensure it is repaid before you retire. 

To find out more, read our guide: What Mortgage Lenders Look For In Applicants. 

What credit score do you need for an unencumbered mortgage?

There isn’t one specific credit score you need to get to that automatically guarantees you’ll be approved for an unencumbered mortgage. That’s because there are three main Credit Reference Agencies (CRAs), all of whom use different scoring systems. 

There are also a number of other factors that determine whether you’ll be approved, and your credit score is one important part of the application process. You could have a perfect credit score but not enough annual income to cover the repayments for the amount you want to borrow. 

To learn more, read our guide: What Credit Score Do You Need For a Mortgage?

Can you get an unencumbered mortgage with bad credit?

Yes, it’s possible. It all depends on the type of bad credit issue, the amounts involved, how much it has affected your credit score, and when it happened. Choosing the right mortgage lender will also be very important. 

Several mortgage lenders (all of which have strong working relationships with us) specialise in helping people with bad credit and assess applications on a case-by-case basis. You may have to pay a slightly higher interest rate and be limited on how much you can borrow. 

What else to consider

Before you apply for an unencumbered mortgage, remember that, like any other mortgage, you could lose your home if you fall behind with the repayments. So, make sure you only borrow an amount you can comfortably afford. 

Along with the interest payable, you should also consider the costs involved with taking out a mortgage, such as arrangement fees and early repayment charges associated with particular mortgage deals. 

If the amount you need is relatively small (less than, say, £20,000-£25,000), it may be worth considering a personal loan, which can be paid off much sooner and have less interest to pay overall than a mortgage loan.