When you buy a property, you might assume you can remortgage whenever you want.
But many buyers find themselves caught out by what’s known as the 6-month mortgage rule, leaving them unable to refinance as quickly as they’d planned.
Here’s what you should know about this rule, who it affects, and what options you have if you need to remortgage sooner.
What is the 6 month mortgage rule?
The six month mortgage rule is a bit like a fairy tale!
It’s a story that has been told for many years, that was based on real events but over that time has been embellished with many untruths.
The 6-month rule isn’t actually a law – it’s guidance from UK Finance (formerly the Council of Mortgage Lenders) that many lenders follow.
It means most mainstream lenders won’t offer a mortgage on a property that’s been owned for less than six months. (some need it to be 12 months)
Importantly, this time period starts from when the property is registered with HM Land Registry, not your completion date.
Given that registration can take several weeks, this effectively extends the waiting period beyond six months from purchase.
Why is there a six month rule?
For the ‘why’ we need to go back in time to the heady days of the buy to let boom.
We’ll begin with a short history lesson
In 1996 the Association of Residential Letting Agents (ARLA) worked with a small group of lenders including Paragon Bank and Natwest to develop a buy to let mortgage product specifically tailored to support landlords in the private rented sector.
The buy to let mortgage was born.
In the years that followed many individuals were able to become property investors and landlords due to the ease of obtaining finance.
A lot of the lenders didn’t even require any proof of earnings (self-cert mortgage). Mortgage money was easy to come by and lenders offered 85%-90% LTV products and asked few questions.
The property market was buoyant and investors (and developers) became wise to the mortgage possibilities.
Properties were purchased using either a mortgage or cash. Upon completion they would then submit a remortgage application, stating a higher valuation, and take out the maximum loan possible.
This often allowed the investor to gain back all of the deposit monies, so they now have a free house.
New builds were a particular problem due to the lack of comparable valuations and many were sold and refinanced with inflated prices.
Things progressed to the extent that while the purchase conveyancing was taking place investors would apply for a remortgage on the same property they have yet to complete on! This allowed the minimum amount of time between purchase and remortgage, and the day one remortgage was created.
The financial crash of 2008
The financial crash of 2008 put the brakes on these practices as lenders realised how exposed they were, some going bust themselves.
The CML then recommended a six month period of ownership before refinancing was possible. Investigations also uncovered money laundering, where cash was used for the initial purchase which was then legitimised by the speedily arranged re-mortgage.
This stopped back to back transactions and slowed the market. Lenders became more cautious when assessing applications and designing products.
Who does this affect?
The rule impacts several types of property owners:
Property developers who buy, renovate and sell homes often work on shorter timelines than six months. A developer buying a property with cash or a bridging loan might want to refinance once improvements are complete.
Auction buyers frequently use cash or short-term finance to secure their purchase, planning to switch to a standard mortgage once they own the property. The 28-day completion requirement at auctions means many buyers need fast initial funding.
People who inherit property might need to raise money against it quickly, perhaps to pay inheritance tax or buy out other beneficiaries. The 6-month rule can prevent them from accessing the property’s value when they need it most.
Which lenders are enforcing the rule?
The majority of the well known high street lenders will not lend within the first 6 months of ownership.
Thankfully, not all lenders observe the rule, preferring to rely on experience and common sense.
They may be a little more conservative than normal when assessing these applications but competitive finance is available from a number of different lenders.
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So what options do you have?
There are remortgage options available for most types of lending.
This will include:
- residential
- buy to let
- holiday let
If you do need a day-one mortgage the lenders tend to be more specialist, with some only dealing with intermediaries and mortgage brokers.
They will look at the circumstances on a case by case basis. If you have completed substantial works to the property then evidence will be required if a higher valuation figure is desired.
If you need to borrow extra money to pay off unsecured debts, then this will need a Debt Consolidation Remortgage.
The next steps
The 6-month rule exists to prevent property price manipulation and money laundering, but it shouldn’t stop legitimate borrowers from accessing finance when needed.
And just because a remortgage is possible within the first six months it doesn’t mean that it’s a good option or the best option.
It’s important to weigh up the costs of moving from one mortgage to another, which may include valuation fees and early repayment charges.
Get in contact with an independent mortgage broker. They will have access to the whole mortgage market, which will include the specialist lenders who are happy to lend within that initial six month period.
Frequently Asked Questions
Yes, there’s no minimum period of ownership.
The actual loan to value will depend on the lender. Day one remortgage options are available up to 90% loan to value.
There will be no stamp duty fees to pay as long as there is no change in ownership.
Yes, the rule typically applies to inherited properties too. However, some specialist lenders offer specific products for inheritance situations, particularly if you need to raise money for inheritance tax.
While some lenders will consider early remortgaging for cash buyers, most mainstream lenders still apply the 6-month rule.
Yes, the rule applies to both residential and buy-to-let properties. However, some specialist buy-to-let lenders might be more flexible, especially if you have experience as a landlord.
The rule applies whether you stay with your current lender or move to a new one.
Yes, even if you’re just changing the names on the mortgage, most lenders will still apply the 6-month rule.
Read more: Can you remortgage and add a name?
