Put simply, the ‘Six Month Rule’ says that if you buy a property you can’t finance or refinance within six months of purchase.
Or, if you finance or refinance a property, you can’t then refinance within 6 months of financing or refinancing.
So, as an example, if you buy a (buy to let) property with a (buy to let) mortgage you can’t then refinance within 6 months – you need to wait 6 months.
Another example – you buy a property for cash. Now you can’t finance the property onto, say, a buy to let mortgage for 6 months.
This is the one which surprises a lot of people – “What? The ‘Six Month Rule’ applies even if I buy for cash?”
Does it apply to residential property? Yes, it can. Depends on the lender. So if you are doing flips and you sell the property within six months, will your buyer get a mortgage? Well, it all depends on which lender they go to – obviously better to go to a lender who is more relaxed about ‘The Six Month Rule’ or who ignores it altogether (more on that in a moment).
Why do we have the ‘Six Month Rule’?
Because of ancient history – back in the day borrowers were buying on a mortgage and then refinancing onto a higher mortgage on the same day; called, surprise, surprise, ‘same day remortgaging’ (What? Really? How? Well, by buying at a BMV price with a mortgage and then refinancing to the full value and taking out the excess and using it as spending money) which was OK until the credit crunch. Then loads of investors and banks got their fingers burnt and the authorities persuaded the banks to slow things down.
But, all is not as it seems, which is why I’ve written ‘Six Month Rule’ with apostrophes and not as Six Month Rule.
The ‘Six Month Rule’ is not actually a rule. It’s not a law. It’s really just a guideline.
Some banks observe it religiously. Others kind of use it and kind of don’t, and some just ignore it altogether.
Some banks won’t lend within 6 months. Full stop. That’s it. No negotiation.
Some banks impose ‘The Six Month Rule’ but can be persuaded, for example, that if you have legitimately increased the value (say by way of a refurb) within the six months since you bought or financed, then you should be allowed to refinance earlier than six months.
And some ignore it and you can borrow whenever you like (but subject to lots of other criteria, of course).
There are no hard and fast rules, and every bank interprets it differently, or not at all.
Each bank has their own views and their own criteria, so it’s not a Rule at all.
By the way, this is another reason why you want a GOOD mortgage broker who understands all this stuff and who understands what the lending criteria of individual lenders is (if you’d like me to put you in touch with my broker just email me email@example.com).
Peter Jones B.Sc FRICS
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