Day 1 Remortgage

What is a day 1 remortgage?

A day 1 remortgage is a remortgage taken out within the first six months of owning a property.

In general, a lender won’t consider an application to remortgage until at least twelve months after the purchase date, although some will consider an applicant between six and twelve months. A day 1 remortgage is a special mortgage product only available under specific circumstances.

The six-month rule was created after the 2008 financial crash, which saw lenders bearing the brunt of negative equity after some buyers took advantage of help to buy or other such schemes, then remortgaged to free up their own finances. As the market crashed, buyers had none of their own funds tied up in the property, and lenders took on all of the debt.

The Council of Mortgage Lenders (CML) have drawn up guidelines for day 1 mortgages to protect lenders. Generally, an application will only be approved under certain circumstances.

Why would I use a day 1 remortgage?

You will only be approved for a day 1 remortgage under specific circumstances. These include:

• If you borrowed funds from a family member or friend because you needed to complete on a property quickly, such as through an auction. A day one remortgage will allow you to pay back what you borrowed. 
• If you acquired a property through inheritance and want to raise funds to buy out other inheritors using this property as security.
• If you have purchased a property on your own, but need a loan to complete urgent renovation work.

If you are looking to remortgage more than twelve months after you completed on a property, you can look at “normal” remortgage products, rather than specialist day 1 remortgages.

 

What should I consider when applying for a day 1 remortgage?

Day 1 remortgages generally offer higher interest rates in order to protect the lender from higher levels of risk. If you can wait until twelve months have passed to remortgage, you’ll likely be able to access better deals.

If you have purchased an unusual property, such as a listed, non-standard or otherwise very unique property, you may have more difficulty applying for a day 1 remortgage. This is because the lender needs to feel confident that you will be able to sell the property again in future.

How does a day 1 remortgage work?

The main point of difference with a day 1 remortgage is higher interest rates, due to an increase in perceived risk.

You may need to contact the solicitor who you instructed for the property purchase to verify your ownership. Normally when a person remortgages, the lender verifies their ownership of the property via the Land Registry. If you have only completed recently, the Land Registry may not have been updated yet, leaving the lender with no evidence that you are the owner of the property.

You can apply for a day 1 remortgage on most mortgage types, including mortgages for both residential and buy-to-let properties, as well as mortgages on an interest-only or capital and interest basis.

How can I get the best rates for a day 1 remortgage?

Lenders will look at affordability criteria as with any other mortgage application. A poor credit history will impact what you can apply for and the chances of your application being successful. 

Lenders will look at your income for a guide as to how much you can pay back. As a general rule, most lenders will cap the amount they are willing to lend at around 4.5x your annual income. Some lenders will increase this to 5x or 6x your income in very special circumstances.