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Capital raising with an unencumbered mortgage – Binney

by: David Binney, head of sales at Norton Home Loans
  • 24/05/2024
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Capital raising with an unencumbered mortgage – Binney
Unencumbered mortgages are an overlooked and under-served area of the mortgage market.

Yet for equity-rich, cash-poor borrowers, taking out an unencumbered mortgage can prove to be an important and useful borrowing tool in situations where a client may be looking to raise capital.

This is particularly true for those homeowners locked out of other borrowing methods due to past credit problems, as despite experiencing financial difficulty or a blip in their credit rating, they are still in a good position because they own a property outright and have accessible equity in their home.

In addition, they have often also either previously paid a mortgage off in full or purchased a property outright, demonstrating clear financial commitment, which means they could qualify for an unencumbered mortgage to satisfy their capital raising needs.


Rising number of unencumbered homes 

According to figures from comparison site, the number of people with an unencumbered property is on the rise, with figures from 2023 showing that 34.8% of households were outright owners, compared to 29.5% who were paying off a mortgage.

These figures are not only surprising, but they also show that there is a real opportunity for brokers to explore this area of the market and help asset-rich, cash-poor clients address their capital-raising needs.

Obviously, an unencumbered mortgage may not be the most suitable option for every borrower, but for those homeowners who own their home outright, they offer the chance to tap into equity built up in their home and use the money to finance other goals. 

This may include raising capital to fund a home improvement project, investing in a holiday home or second property, buying a new car or even funding the deposit for their children or grandchildren to purchase their first home. 

Unencumbered mortgages are also an option for those homeowners who may have found themselves suddenly faced with unsecured debt as a result of the cost-of-living crisis and would like to release equity in their home to consolidate the debt and ease cash flow problems.


There are options for homeowners

Norton Home Loans can lend on an unencumbered mortgage from as little as £3,000, making it an ideal solution in situations where the client is looking to borrow a small sum of money. The application process is also quite speedy, as most of these mortgages are generally processed without any legal or physical valuations. 

An unencumbered mortgage application can be considered for any purpose, including debt consolidation, and can also be available to customers with historical adverse credit and low credit scores. 

Working income up to the age of 75 will be considered for all affordability purposes, with borrowing also available for clients up to the age of 85 years. This flexible approach is also retained across Norton’s lending criteria, with flexibility in income and property types available as standard.

As with all types of mortgage borrowing, taking out an unencumbered mortgage will need careful consideration, as it will be a new and significant financial commitment with which the borrower may no longer be accustomed.

Therefore, it is important that brokers weigh up all possible borrowing options for their client and highlight the risks associated with taking out a mortgage on a previously mortgage-free home.

For brokers unfamiliar with unencumbered mortgages and how they work, speaking to a specialist lender can help provide guidance and clarity over when they may be a suitable option and how they can help borrowers address their capital raising needs.

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