The 6 month mortgage rule can cause problems for property purchases as well as when refinancing is needed.
The rule applies to mortgage applications on properties that have been owned for less than six months. Some mortgage lenders take a firm stance and will not lend within the six month period, others are more flexible.
If you have inherited a property or purchased one for cash, and then tried to apply for a mortgage on it soon after you may have experience of this restriction. This article aims to explain what the rule is and how it is still possible to obtain refinance within 6 months of ownership.
What is the 6 month rule?
The ‘6 month rule’ is not really a rule and it is certainly not a law. It is guidance originally issued by the Council of Mortgage Lenders (CML), now known as UK Finance.
This guidance applies to UK lenders and solicitors/conveyancers where a mortgage application is made on a property that has been owned for less than six months.
Ownership begins from the date that HM Land Registry enters on to the title deeds. This amendment will not happen on the completion date or purchase date but much later.
The guidance encourages individual lenders not to accept applications against a property until the owner has been registered at the Land Registry for at least six months, some lenders extend this time period to 12 months. There are no hard rules to go by so each lender will interpret it differently and apply it to their lending criteria.
Some will lend after six months, some will lend after 12 months and some will lend without requiring a minimum period of ownership!
Why do we need a six month rule?
Most people affected by it would say that we don’t need it at all!
Prior to the financial crash of 2008 mortgage money was easy to come by and lenders were offering higher LTV percentages and asking few questions.
Property investors would purchase a property using either a mortgage or cash. Then immediately after completion they would apply for a buy to let remortgage with a new lender, using a higher valuation than the purchase price, so they could effectively borrow back the original cash deposit. This is known as a day one remortgage and enabled property investors to acquire many properties with ‘no money down’.
In a buoyant and rising property market no-one seemed too bothered about this. However, once the crash took place, with many lenders going bust, properties were repossessed and found to be worth less than the outstanding mortgage. The banks lost even more money.
So the CML decided that a 6 month mortgage rule was needed, effectively putting a stop to the back to back transactions and day one remortgages.
It was also apparent that the previous system was a little too easy for those intent on money laundering. Paying cash for a property and then legitimising it within a few months by applying for a buy to let mortgage and getting the cash back out.
Can I get a remortgage within 6 months of purchase?
Yes you can.
While many lenders adhere strictly to the CML guidance, there are mortgage options for those property owners that need them.
Who would need a day one remortgage?
Here are a few reasons why a remortgage may be needed soon after taking ownership of a property.
- Originally bought the property at auction and now need a long term mortgage
- Originally bought an uninhabitable property and after some property development it is now suitable for a mainstream mortgage
- The property was inherited and now need to access some of the capital value
- Bought a BMV property and now need long term finance.
- Used family money to buy a property which now needs to be paid back
If you know in advance that you will require a remortgage within the six month period then some advance planning may help.
You should certainly let your mortgage broker know. They can liaise with the long term lender and agree on a strategy. Sometimes using a bridging loan instead of cash for the purchase can help a great deal. There’s also the option of a bridge to let product.
We know that it can take a while for the Land Registry to be updated and this can mean that it is difficult to see who owns the property so soon after the transaction. Ask your conveyancer what additional help they can provide with this in mind.
Can I sell a property owned for less than 6 months?
Yes you can.
There’s no minimum period of ownership before you are allowed to sell a property or buy a property.
The mortgage problem still exists for your buyer and they will need to find a lender with a flexible attitude to the 6 month rule. It could also be difficult to prove that you are the owner, due to Land Registry processing times, so speak with your original solicitor for some assistance with this.
How can we help
Many of the strategies and options mentioned are not available from the high street banks and building societies. They tend to play safe and stick close to the CML six month rule.
But whole of market mortgage brokers like ourselves have access to broker only deals and specialist lenders who are active in this market.
Experienced brokers will have access to many lenders who can offer solutions within 6 months of a property purchase for both residential and investment properties.
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Sean Horton is a co-owner of Drake Mortgages and has worked in financial services, mortgages and insurance since 1988. Previously a financial adviser and a mortgage broker, he regularly writes about mortgages, bridging loans and commercial finance.
