You can remortage within six months!


Mark Alexander - Published on 12/09/2012
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It is possible to remortage within six months of purchase, even on a buy to let property, I promise you! Forget everything you have heard about “the CML’s six month rule”, no such rule exists! 

The legend of the “CML’s six month rule” for remortgaging has been bandied around forums for at least five years now but I can assure you that no such rules exists – allow me to explain. You can remortage within six months!

For as long as I can remember, and certainly well before Mortgage Express withdrew their instant remortgaging product, the CML (Council of Mortgage Lenders) and the Law Society have been advising their members to be extra diligent when mortgaging a property which has been owned for less than six months. In the previous decade (particularly 2003 to 2008) many lenders took a very relaxed approach to the guidelines and the reports they received from conveyancing solicitors. Nevertheless, conveyancing solicitors were, even then, duty bound to report to mortgage lenders any property being mortgaged within six months of the original purchase date.

History has proven that underwriting decisions made in the last decade were flawed. As soon as that became obvious to lenders the reaction was was an inevitable over tightening of lending criteria. They realised that substantial risks were associated with not following the CML’s guidelines and they over compensated by refusing to provide any buy to let mortgages within six months of the purchase date. And so the legend of the “CML’s six month rule” was created.

So why was the CML’s guidance issued in the first place and more to the point, why was it pretty much ignored by lenders for 5 years?

The latter part of this question is know well known and can be summed up in one word – GREED.

The CML’s guidance was actually issued to alert lenders of potential of risks associated with providing mortgages on properties which had been owned for less than six months. The decision to disregard this guidance cost lenders billions. Thousands of mortgage brokers, property clubs and landlords decided to take advantage of the lenders greed. Properties were purchased for cash or with bridging finance and then instantly remortgaged based on the highest valuation that a valuer was prepared to put in writing. Most solicitors did their job properly and reported that properties had been purchased within six months but lenders simply disregarded the advice and went ahead without asking any further questions.

The inevitable greed and abuse which ensued also compromised the integrity of many professional valuers. In many cases during the boom years of 2003 to 2008 whole developments were being sold to buy to let investors. It was not uncommon for six valuations to be instructed on one property. The valuer who gave the highest figure would then be instructed to provide the valuations for the all of the other units. For valuers it became a necessary risk to put their PI insurance on the line and value the properties at more than their rival firms to ensure they got the really lucrative deal of valuing all other properties in the development. It wasn’t just new build developments that were affected though, valuers soon earned a reputation of being either generous or tight and it doesn’t take a rocket scientist to work out which of these two the mortgage brokers, property clubs, landlords etc. decided to give their business to. In many cases, lenders ended up lending 100% of the true purchase price of the property, sometimes a lot more.  Lenders were taking 100% of the risk or more and the purchasers were taking 100% of the profits if any were made.

The outcome of the above was that that for a while, when this all came out in the wash, all buy to let mortgage lenders simply refused to remortgage property which had been purchased within six months. Lenders also tightened up on their criteria to check that the person they were lending to really did have a financial commitment to the purchase and that the solicitor had completed all of their requirements in terms of checking for hidden incentives. This had a knock on effect though.

Several landlords buy properties at auction and arrange the mortgage after the event as it is incredibly difficult to arrange a mortgage of a property pre-auction. It’s also very rarely cost effective to arrange mortgages pre-auction as landlords tend to bid for a lot more properties than they actually purchase. Some landlords would purchase a property every month and have a little conveyor belt of a new purchases and a new mortgages every month. Not being able to obtain a mortgage after the auction effectively meant that these landlords could now only buy an additional property every six months.

Many landlords also buy properties for cash or with bridging finance with the intention of improving their value through refurbishment.

In both of these scenario’s, established operators found themselves trapped and unable to refinance for six months, even though they had done absolutely nothing at all wrong. Obviously they turned to internet forums to share their frustrations and to look for alternatives but all landlords were having the same problems for at least a few years. This further fanned the flames which fed the legend of the CML’s six month rule.

True commercial lenders didn’t have the same knee jerk reaction and continued to ‘take a view’ as they always had. They never really suffered the effects of the buy to let boom between 2003 to 2008 as they simply didn’t look attractive in comparison to the buy to let mortgage lenders at that time, hence they didn’t do much of this type of business. When landlords eventually realised this, and were prepared to accept the pricing differentials, the remaining commercial lenders (which had their own completely different set of problems) were in a position to pick and choose.

Fortunately, a lot of water has passed under the bridge since the collapse of Mortgage Express and Northern Rock.

Some lenders which has stopped lending altogether have even returned to the market, Paragon Mortgages perhaps being the most notable example.

GOOD NEWS!

If you purchased a property for cash or at auction it is now possible to get a mortgage for 75% of what you paid for it before six months have elapsed. Only a handful of buy to let lenders will do these deals but many more specialist lenders, who tend to deal exclusive with commercial finance brokers, are becoming increasingly active. However, be warned, if you are hoping to get a mortgage for 75% of what a valuer says the property is worth, not what you paid for it, forget it, you’re probably going to have to wait for at least six months to get that, especially if you go direct to a BTL lender. What this does mean though is that if you purchased a property at auction it it now possible to get a buy to let mortgage whereas as 12 months ago it wasn’t. If your business model is anything other than ‘vanilla’ buy to let (refurbishment, semi commercial etc.) then it definitely pays to be talking to a broker whose letterhead carries the NACFB badge (National Association of Commercial Finance Brokers). The NACFB is an independent professional body founded in 1992. it’s members are niche commercial lenders and specialist brokers. Very few financial advisers and mortgage brokers are also NACFB affiliated, there are certainly less than 1,000 of the across the UK as it’s a very specialist market and the fact that most broker business is consumer based they can’t justify the cost and continual professional development associated with being NACFB affiliated.

If you do genuinely feel that you are trapped and can’t get a new mortgage on a property purchased within the last six months you may not be, there are lenders out there looking for good business and taking a sensible approach to lending again. I also expect to see more lenders falling back to a position whereby their lending criteria will follow the guidelines issued all those years ago by the CML. We’ve seen the pendulum swing in both directions over the last decade, now it’s approaching the middle again.

If you would like to discuss a deal to see whether it is realistic to arrange a mortgage please contact my business partner, Neil Patterson on 01603 428560 or email npatterson@property118.co

PS – despite having retired from broking in 2009 we have retained our NACFB membership and we will be pleased to provide an assessment of the likelihood of your funding requirement being successful free of charge. If we think we can help we will be pleased to introduce you to an appropriate NACFB affiliated broker. All we ask in return is that you consider making a donation towards the upkeep of this forum and the services we provide. Effectively, you can pay what you think our advice is worth to you.

Please also see >>> http://www.property118.com/donations/43590/

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Comments

  • Alan Smith says:

    Great article. I know so many people who think they can’t
    remortgage after 6 months. I will definitely be pointing them to this article.

    http://quicklysellaproperty.co.uk/


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  • Cheers Alan, here’s something that you and other property sourcers may also not know much about. I’m giving you a friendly “heads up” here so please take this seriously and share the following linked post amongst others who work in the same market and whose business model is similar to your own >>>
    http://www.property118.com/index.php/open-letter-property-ombudsman/31245/


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  • Spike Reddington says:

    I heard it referred to as ‘the rule that’s not a rule’. Not always true that “if you purchased a property at auction it it now possible to get a buy to let mortgage whereas as 12 months ago it wasn’t.”

    With a good mortgage broker and solicitor team, we managed to secure a mortgage on an acuction purchase and complete in 21 days in July 2011. We did have to wait 6 months before we could put in an application to refinance based on the extensive improvement works we did, which thankfully, was accepted.


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  • Hi Spike, whilst I agree that it is possible to arrange a mortgage pre-auction the reality of auction buying rarely makes this viable. You can invest a lot of time and expense into getting a mortgage agreed pre-auction only to find yourself outbid. Do this a dozen or so times and you soon realise that the theory is great, the feasibility isn’t. Sounds like you were lucky, congratulations!


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  • Spike I agree with Mark, I wouldn’t try to buy an auction property with a mortgage, I have a friend who lost a £6K deposit trying to do that on a DIP and the mortgage was refused :-/ You need to have cash, either your own or an investor’s.

    As I understand it, 6 months is not a rule but a guideline, albeit one they all follow. However it doesn’t apply to resi mortgages, if you intend to flip the property the end buyer can get a resi mortgage within the 6 months. The other way is to never even go on title, do an assisted sale, take a Power of Attorney on the property so you can force a sale, and register a restriction at LR to stop them selling it from under you.

    You could also try doing the refurb between exchange and completion, but you will need an assignable contract and the end-buyer’s lender may refuse to accept that as it has associations with portfolio-builders and they don’t like that.

    Do the refurb then sell it on. I have one going through right now which I should make about £30K on after all costs. Happy days!


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  • Hi Richard, there are at least 3 BTL mortgage lenders who will allow landlords to raise a mortgage within 6 months of purchase now and I’m not including Coutts & Co which is out of so many people reach. I agree on all the other points. I prefer the deferred completion strategy if I’m not buying at auction, e.g. a probate sale.


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  • Reply to the comment left by “Mark Alexander” at “22/09/2012 – 04:30“:

    Hi Mark

    Give the lender names who remortgage with in six months

    Raj


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  • Hello

    I know MT is the lender who consider the applications within 6 months what are the other two

    Raj


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  • Reply to the comment left by “Raj kumar” at “16/10/2013 – 11:55“:

    Hello Raj

    Mark’s last comment was in September 2012, however the mortgage market has come a long way since then.

    Since then, there is no more FSA, there are new lenders who have launched, the BTL and commercial lenders have been hugely more proactive and many new products are available, HOWEVER what remains the same is that even though you will find many lenders mentioned on Property118 that a borrower could go direct to, there are however many, many more who only operate via intermediaries.

    To have the list of lenders who will mortgage or remortgage (for both are possible) within 6 months, it would be prudent to work alongside a whole of market mortgage broker who knows the full range of options (by ‘full range’, I mean those lenders who provide additional products and services via NACFB Members too) so that you have true access to the marketplace via professional, whole of market advisers.

    Every lender has it’s own quirks and criteria requirements and so it’s one thing knowing who the lenders are, but another entirely knowing whether you are eligible for them in the first place.

    In summary, liaise with a Broker for full insight and no doubt you may find at least one or two Brokers on Property118 who will be able to assist.

    Howard.


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  • Reply to the comment left by “Howard Reuben” at “17/10/2013 – 17:52“:

    Very well said Howard and I would urge anybody needing finance to check out Howard’s Member Profile >>> http://www.property118.com/member/?id=314
    .
    Mark Alexander recently posted…The GOOD Landlords CampaignMy Profile


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