Demystifying the 6 Month Mortgage Rule: A Complete Guide

The 6 month mortgage rule is one of those puzzling regulations that often catches homebuyers and property investors off guard. While not an actual law, this guideline enforced by most lenders can throw a wrench in your plans if you’re looking to finance a property purchased within the last 6 months.

In this comprehensive guide we’ll demystify this rule by covering

• What exactly is the 6 month mortgage rule
• Why the rule exists in the first place
• How it impacts mortgage and remortgage applications
• Strategies for securing financing within the 6 month window
• Which lenders may grant exceptions to the rule

Arm yourself with knowledge before your next property purchase to avoid any financing headaches down the road

What Is the 6 Month Mortgage Rule?

The Council of Mortgage Lenders (CML), which is now called UK Finance, said that lenders shouldn’t give mortgages on homes that were bought within the last six months. This is known as the “six-month rule.”

This rule isn’t set in stone, but most major lenders follow it as a general rule when they look at loan applications. Some lenders extend this period to 12 months.

The rule applies both to primary residences and investment properties. It also affects remortgage applications in addition to purchases.

So, if you just bought a house through an inheritance, an auction, cash, or by taking over the deed from a family member, you might have trouble getting financing in the first six months.

Why Was the Rule Implemented?

After the 2008 financial crisis, regulators wanted to limit risky lending practices that left borrowers overleveraged and lenders exposed.

Back-to-back, or “one-day remortgage,” schemes that investors used were one that got a lot of attention. Here’s how it worked:

• An investor would purchase a property with a small deposit, say 10-20%

• The very next day, they’d remortgage the property with a new lender at full market value

• This allowed them to pull their original cash investment back out to fund another purchase

• With little or no equity invested, investors had less incentive to keep up with payments if property values declined

By clamping down on these quick back-to-back transactions, regulators hoped to encourage more responsible borrowing and lending. The 6 month buffer gives lenders time to assess risk and prevents abuse of the system.

How Does the Rule Impact Mortgage Applications?

If you need financing within 6 months of acquiring a property, you’ll face an uphill battle with most mainstream mortgage lenders.

Exactly how the rule affects you depends on your circumstances:

Mortgage for a Primary Residence

Most lenders will reject mortgage applications against properties purchased within the last 6 months. You may have better luck if inheriting the property or receiving it as a gift from family.

Remortgaging

Around half of lenders won’t accept remortgage applications within the first 6 months of ownership. This includes remortgaging to pull cash out of a property.

Buy-to-Let Mortgages

The 6 month rule is strictly enforced by most buy-to-let lenders, making it difficult for investors to obtain financing.

Bridging Loans

If you initially used a bridging loan to purchase, remortgaging within 6 months can also be problematic.

New Builds

Some lenders calculate the 6 months from the date the property is registered with the Land Registry, not the purchase completion date. This causes issues if registration is delayed.

Selling On

You may struggle to find a buyer if selling a property you’ve owned for less than 6 months. Their lender is likely to deny financing because of the rule.

As you can see, the 6 month rule can throw a real curveball into your plans if you need to finance a recently acquired property. The good news is there are ways to overcome the challenge.

How to Get a Mortgage Within 6 Months of Purchase

Just because a property has been in your possession for a short period doesn’t mean securing a mortgage is impossible. Here are a few strategies for getting approved within the 6 month window:

1. Provide Valid Rationale

Some lenders are more flexible if you have a genuine reason for needing fast financing. Reasons like inheriting the property, renovating a rundown property, or releasing cash from a property bought outright can help.

2. Use a Bridging Loan for Your Purchase

Bridging loans are exempt from the 6 month rule. By using short-term finance to buy, you can remortgage immediately after with some lenders.

3. Buy via Property Auction

As with repossessions, mortgage lenders tend to be more sympathetic to auction buyers needing long-term finance.

4. Partner With a Specialist Broker

An experienced broker will match you with lenders open to lending within 6 months. They can also suggest tailored solutions based on your circumstances.

5. Have a Solid Credit History

The stronger your financial profile, the more confident lenders will feel lending within the 6 month timeframe. A clean credit history helps offset risk.

Which Lenders Are More Flexible?

Most major banks and building societies rigidly adhere to the CML guidance and reject loans within 6 months. However, smaller lenders and specialists have more leeway.

Here are a few to consider if you need fast financing:

• Paragon
• Precise Mortgages
• Virgin Money
• Foundation Home Loans
• Barclays
• Cumberland Building Society
• Furness Building Society
• Leeds Building Society

A good broker can outline lenders willing to consider applications within 6 months and match you with the right option.

Summary: Smart Strategies for the 6 Month Rule

While restrictive, the 6 month mortgage rule isn’t designed to trip you up or obstruct your plans. By understanding the rationale behind it and arming yourself with the right tactics, securing finance is possible even within a 6 month timeframe.

The keys are choosing alternative lenders, using bridging products, and working with brokers who can match your situation with the most amenable lender. With the right approach, you can overcome this hurdle and get the financing you need.