Avoiding the ‘six month rule’

THE QUESTION

If I buy a property for cash through a Limited Company, does the 6 month rule regarding remortgaging apply?

THE ANSWER

Some lenders choose to apply a 6 month restriction, whilst others don’t.  Actually, it isn’t really a rule, just a restriction, but it has commonly become known as ‘the six month rule’.

For those lenders that apply it, the point to get clarity on is that it is a length of ownership restriction, not a method of purchase restriction.  This means that, if a lender requires you to own the property for 6 months, the restriction will apply regardless of the entity whether you bought it as an individual or a company and regardless of the method you used to buy it, cash, bridging or any other method.

If you want to buy cash and refinance within six months, simply pick a lender that does not invoke the restriction.  Any decent broker will be able to source those lenders for you.

It is also worth highlighting the other issue you don’t mention, but is almost certainly in your mind, knowing property investors as I do.  If it is your intention to recycle all of your cash by this strategy it will pay you to be aware that no mortgage lender’s surveyor recognises buying below market value (BMV), in isolation, as a justifiable reason to value a property higher than the purchase price paid a few weeks/months previously.

You will get the property valued at exactly the price you paid for it.  They will recognise work done to improve the property as a justifiable reason, as long as they have clarity on how the property has been improved.  There are a number of strategies that you can apply to improve the valuation, but just pointing out the improvements isn’t usually enough to convince them of the increased value.  These strategies are all part of the Ninja investor Programme.

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