11-10-2015

The 6 month mortgage rule.

If you have brought a property for cash or you have inherited a property from a relative and you have then tried to remortgage it a few months later you may have come up against the 6 month rule. So why is it there and how can you get around it?

Why is there a 6 month rule?

Back in the days of 100% mortgages, 90% buy to let loans and a lot less regulation in the mortgage market including surrounding new build property and incentives, there were many unscrupulous individuals that played the game and took advantage of the market as it was at that time.

Property was brought undervalue either from a forced sale or from a new build developer with cash backhanders used as the deposit. The property was then refinanced on day 2 of ownership and was re-mortgaged at full market value (often using a surveyor known to the individual for valuing up property).
There were property clubs with surveyors, brokers and builders all working together to make these deals happen and the end result was property was purchased for as little as 10% deposit day 1 and refinanced day 2 at 90% loan to value of ‘full market value’ allowing the purchaser to get their initial investment back out of the property and more. This left the property owner with no vested interest in the property and the lender carried all of the risk. When the market crashed these owners were more likely to go into negative equity and also to have their property repossessed, at no financial loss to the owner as they had none of their own money in the property.

The outcome was that lenders had their toes burned and many stopped lending on what were called back to back loans and the 6 month rule was introduced.

Most lenders now have a 6 month rule in place, but not all. With sensible underwriting and your broker positioning the lending correctly it is possible to remortgage within 6 months.

Lenders that will lend within 6 months.

There are lenders that will finance a property that has been brought recently for cash or was inherited from a family member.

The lenders will look at the circumstances and ask for a full explanation as to how the property was purchased/acquired or in the case of a new build will look at the source of funds used to build the property before agreeing to lend within 6 months.

The good news is that there are residential, buy to let and commercial lenders that will all lend within 6 months of you initially owning a property.

The issues you will have when trying to refinance within 6 months is that some lenders will only recognize the initial purchase price and use that figure for their loan to value calculations.

If you have done considerable works to the property and can evidence this then we can look to build a case for working on the new property value.

The 6 month rule can be overcome so call a broker to discuss your remortgage needs in more detail..