If you have bought a property for cash or perhaps inherited one and then tried to raise funds against it through a mortgage you may have come up against the 6 month mortgage rule. It’s a little known rule that could have a significant effect on your ability to sell or mortgage a property.
What is the 6 month mortgage rule?
Back in the property booming days of the 90’s and early 2000’s there was a trend for investors in buy-to-lets to use one day remortgages as a way of buying a property with no deposit. Essentially they would purchase the property with a 10% or 15% deposit through one lender and then remortgage the next day at full market value with another lender. As a result the second lender carried all the risk and when the market crashed many had their fingers badly burned. This led to the introduction of the 6 month mortgage rule whereby most mortgage lenders will now not permit borrowing against a property until the owner has been registered at Land Registry for 6 months. Likewise, if you are looking to sell your property and have been registered as the owner for less than 6 months, lenders may consider the transaction as sub-selling and most (but not all) will not lend to the buyer under these circumstances.
The reality of the 6 month mortgage rule
The 6 month mortgage rule has somewhat slowed down the market for investors looking to renovate properties with a view to selling them on at a profit. Once you buy a property most lenders will require that you wait a minimum of 6 months from the date the property was registered with the Land Registry (note this is different from the purchase date) before allowing you to sell or raise funds against it. There are still a small handful of lenders willing to offer one day remortgages however stringent restrictions are in place and in nearly all cases the solicitor acting for the lender must report the specific circumstances to the lender before they will approve the mortgage completion and release funds to the borrower.
The CML (Council for Mortgage Lenders) has produced a handbook outlining the requirements of individual lenders on this particular topic which can be found using the following link:
Council for Mortgage Lenders Handbook
For more information on this topic or any other property related matter please contact our Head of Conveyancing, Liz Searl, on 01245 893400 or via email at liz.searl@backhouse-solicitors.co.uk
The Backhouse Solicitors Team
www.backhouse-solicitors.co.uk
