An unencumbered mortgage is a new mortgage on a home that has no loans secured against it. It isn’t a special product: you apply for a standard mortgage, and the lender takes your debt-free home as security.
Owning your home outright puts you in a strong position, but it doesn’t guarantee a lender will say yes. You still have to show you can afford the payments, and the FCA’s lending rules stop lenders basing that check on the equity in your home.
Below, we explain how much you could borrow, what lenders look at, how rates work and the steps to apply.
What does unencumbered mean?
A home is unencumbered when nothing is registered against it. There’s no mortgage, no secured loan and no other legal charge on the title at HM Land Registry.
You might be in this position because you’ve paid off your mortgage, bought with cash or inherited a home.
Is it a mortgage or a remortgage?
Strictly, it’s a new mortgage, because there’s no old loan to pay off. Lenders usually treat it as a remortgage because you already own the home, which is why you’ll also see it called an unencumbered remortgage. Both terms mean the same thing here.
Why do people take out an unencumbered mortgage?
Lenders will ask why you want the money, and most reasons are fine.
The most common are:
- Home improvements, such as an extension or a loft conversion
- A deposit for a buy-to-let or a second home
- Helping a child onto the ladder with a gifted deposit
- Clearing other debts (see the warning further down)
- Raising money for a business
- Releasing cash from a home you’ve inherited
The reason you need the money matters more than most people expect. It can change how much a lender will let you borrow, as the next section shows.
How much can you borrow on an unencumbered mortgage?
Two limits apply, and the lower one decides the maximum loan.
Loan to value. This is the loan as a share of your home’s value (read more on what loan to value means). Many lenders cap borrowing on a mortgage-free home at 75% to 85%, and some go to 90%. The cap often depends on what the money is for. At the time of writing, Leeds Building Society allows up to 90% to improve the home, 75% for most other reasons and 55% for business use.
Affordability. The lender checks your income and your regular bills, as the FCA’s lending rules require. Most cap loans at around 4.5 times income, though some go higher for strong earners. Our borrowing calculator gives you a rough figure.
A worked example
Say your home is worth £650,000 and you’d like to borrow £400,000.
| Check | Sum | Result |
|---|---|---|
| Loan to value | £400,000 ÷ £650,000 | 61.5%, within most limits |
| Income of £85,000 at 4.5 times | £85,000 × 4.5 | Up to £382,500 |
| Business use at a 55% cap | £650,000 × 55% | Up to £357,500 |
Here, your income sets the limit, not your home’s value. You could borrow about £382,500, unless a lender offers a higher income multiple. If the money were for a business, a lender with a 55% cap would stop at £357,500.
Do you need a deposit?
No. The equity in your home does the job a cash deposit would, as long as the loan sits within the lender’s maximum loan to value.
What do lenders look at?
The checks are much the same as for any mortgage, but a few matter more when the home is debt-free.
Income and spending. Expect to show payslips, or tax returns if you’re self-employed, plus recent bank statements.
Your credit file. Lenders look at how you’ve handled credit in the past. More on this below.
Your age. Lenders set an age limit for the end of the term. One large building society allows up to 85 on a repayment mortgage, but many set lower limits. If you’re close to or in retirement, read our guide to borrowing into retirement.
How long you’ve owned it. Many lenders want you to have owned the home for at least six months. This is known as the six-month rule. It often catches people who bought for cash or inherited a home recently.
Condition and type of home. The lender will value the home. If it’s in poor repair or of unusual build, fewer lenders will consider it.
Title checks. With no current lender, the new lender’s solicitor checks the title closely. Sometimes a loan was paid off years ago but its charge was never removed from the register. This can usually be put right, but it adds time.
Inherited a home?
In England and Wales, an inherited home stays part of the estate until probate is granted and the executor transfers it to you at HM Land Registry. You can’t mortgage it before then. Once it’s in your name, the six-month rule may apply, though some lenders make exceptions for inherited homes.
Capital Raising Mortgages
Our guide will walk you through how capital raising mortgages work, what you can spend the money on, and where to get one.
Can you get an unencumbered mortgage with bad credit?
Yes, it’s often possible, depending on what the problem was, how large it was and how long ago it happened. A late phone bill two years ago counts for far less than a recent default or a county court judgment.
Owning your home outright helps because the lender has strong security, but it won’t make up for poor credit on its own. Some lenders focus on people with past credit problems, though you may pay a higher rate.
Check your file with all three main credit reference agencies, Experian, Equifax and TransUnion, before you apply. Our credit hub shows you how.
Unencumbered mortgage rates
Rates on a mortgage-free home are much like standard mortgage rates. The main driver is your loan to value. Borrow a smaller share of your home’s value and you’ll usually get more deals to choose from, at lower rates.
We can’t tell you the best rate, as deals change from week to week. A whole-of-market broker can compare them for your case.
How to get an unencumbered mortgage: step by step
- Decide how much you need and why. Have a clear reason ready, as the lender will ask.
- Check your credit files and fix any mistakes.
- Get a rough figure from a borrowing calculator.
- Gather your papers: ID, proof of income, bank statements and proof you own the home.
- Speak to a broker, who can match you with lenders that suit your reason and income.
- Get an agreement in principle, then make a full application.
- The lender values the home, and a solicitor or conveyancer does the legal work.
- You get a formal offer, and the money is paid out on completion.
Many cases take four to eight weeks from application, though title problems or complex income can make it longer.
What does it cost?
The costs are much the same as for any mortgage:
- An arrangement or product fee, which you can often add to the loan (you’ll then pay interest on it)
- A valuation fee
- Legal fees, though many remortgage deals include free legal work
- A broker fee, if your broker charges one
Some lenders limit extras such as cashback or free legal work on unencumbered cases, or only offer them on larger loans. Check what each deal includes.
There’s no stamp duty to pay. Stamp Duty Land Tax applies when you buy property, not when you borrow against a home you already own.
Other ways to borrow against a home you own
A standard mortgage isn’t the only choice, and the table below shows how the main options compare.
| Option | Who it suits | Monthly payments | What to know |
|---|---|---|---|
| Standard mortgage | Most owners with a steady income | Yes | Often the cheapest route, but you must pass the lender’s checks |
| Buy-to-let mortgage | Owners of a let home with no mortgage | Yes | Based mainly on the rent; some buy-to-let loans aren’t regulated by the FCA |
| Bridging loan | Short-term needs, such as buying at auction | Interest is often added to the loan | Fast, but costs more, and you need a clear way to repay |
| Lifetime mortgage | Owners aged 55 or over | Optional | No affordability check, but the debt can grow fast |
Equity release is a big step. MoneyHelper puts the set-up fees at £1,500 to £3,000, and the loan is repaid when the home is sold after you die or move into long-term care.
Things to think about before you borrow
Your home is at risk again. Once you take a mortgage, your home is security for the loan. If you can’t keep up the payments, it could be repossessed.
Clearing debts can cost more. Moving short-term debts onto a long mortgage term can mean paying more interest overall. Think carefully before securing other debts against your home. Read why debt consolidation mortgages can cost more.
Payments into later life. A long term may run past the date you retire. Make sure the payments still work on your pension income.
Your estate. A mortgage cuts what you leave behind. If inheritance tax planning matters to you, speak to a financial adviser or solicitor.
How a mortgage broker can help
Lenders treat mortgage-free homes in different ways, and some cap the loan by the reason you give. Some won’t lend until you’ve owned the home for six months. Others hold back extras on unencumbered cases. A broker knows these rules and can take you straight to lenders likely to say yes.
A whole-of-market broker can also find deals you can’t get direct. Respect Mortgages doesn’t arrange mortgages, but we can put you in touch with a specialist independent broker who can.
Frequently Asked Questions
An unencumbered mortgage is a mortgage on a home that has no other loans secured against it. It’s a standard mortgage, not a special product. Because the home is debt-free, the new lender takes the first charge. You still need to pass its checks on income, spending and credit history.
It can be, if you have a clear use for the money and can afford the payments. Secured loans are often cheaper than unsecured ones. But your home becomes security again, so it’s at risk if you fall behind. Compare the other options first, including borrowing less or using savings.
The lower of two limits applies. The first is the lender’s maximum loan to value, often 75% to 85% and sometimes 90%, depending on what the money is for. The second is affordability, which most lenders cap at around 4.5 times your income.
No. The equity in your home acts as your deposit, so you don’t need cash up front. The lender only needs the loan to sit within its maximum loan to value for your reason for borrowing.
Often, yes. It depends on the type of problem, its size and how recent it was. Some lenders focus on people with past credit issues, though their rates may be higher. Owning your home outright helps, but it won’t outweigh recent serious problems on its own.
Yes. If you own a let property outright, you can borrow against it with a buy-to-let mortgage. Lenders look mainly at the rent it earns. Many cap the loan at 75% to 80% of the value. Some want a minimum personal income, while others don’t.
