Many of our clients need to refinance a property soon after it has been purchased. The reasons are genuine and varied. However, these types of remortgages can be difficult to find as most lenders prefer you to own the property for a while first.
Our Guide to Day 1 Remortgages will explain what they are, how they work and how you can apply for one.
What is a Day One Remortgage?
The name can be a little confusing as a ‘Day One Remortgage’ does not have to take place on Day 1 of property ownership.
It refers to the process of remortgaging a property that you have only just bought, or purchased within the last 6 months. This can of course include owning it for just one day!
The majority of mainstream mortgage lenders prefer you to have owned a property for 6-12 months before attempting to remortgage it. This is commonly known as the six month rule. For those lenders it means that you cannot take out a new mortgage within six to twelve months of completion.
How does a Day One Re-mortgage work?
A day 1 re-mortgage works in much the same way as a standard remortgage.
You apply for a new mortgage with the intention that this will replace any mortgage or loan on the property already. Often borrowers will apply for a larger sum of money than currently outstanding.
A legal conveyancer is still needed to undertake work for the lender and to register the mortgage charge against your property.
The process is the same whether you currently have a mortgage or bridging loan or if the property is unencumbered (owned outright).
One problem can be with verifying who owns the property. If you have not owned the property for very long then your details may not have been updated with the Land Registry. If this is the case confirmation from the original solicitor will be needed to prove ownership.
When would you need one?
You have recently inherited a property that you wish to release some capital from.
You purchased the property partially using money from friends or family to speed up the process. You now want to repay them.
You need to raise money quickly to secure another deal.
You originally bought the property with cash and wish to now convert to a mortgage.
Some of the cash deposit you originally used is needed back unexpectedly.
You have been gifted a property and need to withdraw money using a mortgage.
The purchase was initially made using a bridging loan and you now need to repay it.
After buying a property at auction you would like a long term mortgage set up.
Can they be used for buy to let?
A lot of the problems that led to the ‘six month rule’ were related to buy to let property purchases. Investors would buy a property at a discount then immediately sell it on or remortgage it for the full value to make a profit or raise capital. Many of the valuations were inflated or incorrect.
What is the 6 month rule?
The six month rule is not law but it is a recommended guideline from the Council of Mortgage Lenders for UK lenders to follow.
As a consequence most mainstream and high street lenders will not accept a mortgage application until you have been the owner for either 6 months or 12 months, depending on the lender.
The main purpose is to help prevent mortgage fraud and money laundering.
Previously you were able to purchase an undervalued property or purchase by using undeclared cash and then immediately remortgage and extract all of the initial capital employed, leaving the lender fully exposed. This was particularly prevalent with investment properties using buy to let mortgages.
When can I apply?
Generally speaking a day one remortgage lender would only be suitable if you have owned a property for less than 6 months.
If you have owned it for longer then we will be able to source a better lender with better terms for you, and there’s a lot more choice.
You are able to apply for a day 1 remortgage as soon as you have completed the purchase. However, if you know that this will happen we suggest that you have a chat with one of our mortgage brokers before completion so that we can explain what options you have.
It will also be a good idea to mention this to your solicitor.
A large majority of day one mortgage borrowers will have bought unmortgageable properties. These are then renovated, adding new bathrooms and kitchens etc to bring them up to standard. Initially purchased with cash or auction property finance, the owner then wants an exit to a longer term mortgage such as a buy to let. The re-mortgage application is made while the work is being carried out with a view to it being ready when the property is finished.
How much can I borrow?
The market for these types of mortgage is very small and includes many specialist lenders.
Because of this we would suggest you use an independent mortgage broker such as ourselves to find the best solution for you. A broker will have access to many more lenders, mortgage products and schemes.
The amount you can borrow will differ between lenders but typically 75-80% LTV is achievable.
Specialist lenders can go to 90% but each case is assessed on its own merits.
Why use a mortgage broker?
As an independent mortgage broker, Drake Mortgages have access to day one remortgage lenders of all sizes from high street banks, to building societies and specialist lenders. Our experience enables us to provide our clients with a wide range of mortgage advice and options for their borrowing needs. Interest only and repayment mortgages are both available.
This applies to residential property, buy to let, holiday let and commercial.
Day one remortgages are a specialist type of lending and it is vital that you seek advice from an experienced broker that has access to the whole mortgage market.
In addition to finding you the right mortgage, your broker will help with the paperwork and any lenders requirements along the way.
Speak to an expert about REMORTGAGING
The right advice is crucial when looking for a day one remortgage. With over 20 years advising on remortgages our brokers can save you time by searching the whole market to find you a great deal.
Call 020 8301 7930 to start your journey with us.