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Written by Ruban Selvanayagam
Ruban Selvanayagam
Ruban Selvanayagam is a professional cash homebuyer, private rented sector landlord, auction specialist, blogger and media commentator.
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Edited by James Durr
James Durr
James Durr is a passionate property entrepreneur with a strong foundation and background in business.
The process of selling a property before owning it for 6 months is certainly possible – but not without its challenges.
This is because there are a number of regulatory controls and restrictions on the seller’s ability to move forward, particularly where mortgages are involved.
In this article, we’ll cover:
- The 6-month rule and its implications
- Understanding HM Land Registry requirements
- Mortgage company requirements
- Targetting cash property buyers (and what this may mean)
- Eliminate all the scruff, stage your property for sale and consider effective marketing strategies.
The 6-Month Rule and Its Implications
The “6-month rule” is a regulation governing many mortgage companies (particularly mainstream lenders).
It requires homeowners to own the property for at least six months before selling it. This regulation aims to protect the housing market, reduce fraudulent activities and comply with government-led Anti-Money Laundering (AML) directives.
In the UK, this rule is enforced by the Council of Mortgage Lenders (CML) on banks, building societies and mortgage firms.
The regulations also ensure that the borrower has sufficient time to settle into their home and demonstrate stable financial stability before taking out a new mortgage.
Note that the 6 month period starts when the property sale is filed at HM Land Registry (not necessarily on completion day).
The 6-month rule also applies to refinancing properties after a cash purchase – usually by auction and professional home buyers like Property Solvers.
Why Does the Council of Mortgage Lenders (CML) Enforce the 6-Month Rule?
The 6-month rule is a measure for mortgage providers to prevent back-to-back transactions and day-one re-mortgages linked to mortgage fraud.
Prospective buyers can start questioning the property’s genuine value and if anything suspicious (or even illegal) is occurring in the background.
Consequences for Selling Within 6 Months
With many mortgage lenders operating under the 6-month rule, finding buyers within this period can be difficult.
Other hindrances include breach of mortgage agreements, early redemption penalties and possible tax repercussions.
Exceptions to the 6-Month Rule
Although the 6-month rule is widely imposed, specific circumstances permit homeowners to sell their property within six months.
Cash Buyers
As cash buyers – like Property Solvers – do not rely on mortgage lending, they can move much faster – often in days / weeks.Cash buyers typically look for properties that need work and will therefore offer below the market value. Our own home buying fund will also cover all legal fees and there are no estate agency costs to pay.
Exchange with Delayed Completion Transaction
Some property developers and traders exchange contracts with the intention of completing at a later stage. There are occasions where the seller can effectively then pass on the purchase to another buyer.Note that this is a legal “grey area” and some mortgage companies will still refuse finance under such circumstances, even after the 6 month period.
Estate Liquidation
If the most recent sale forms part of a wider transaction involving a deceased person, mortgage lenders may agree to waive the restriction (and any associated fees).
Finding a Lender That’s Willing to Work Around the 6 Month Rule
There are a handful of specialist lenders that will give the go-ahead on mortgage finance prior to the expiration of the 6-month rule.
Remember to check the terms as there may be a higher pay rate alongside requirements to put down more of a deposit.
Mortgage Company Requirements
If a purchaser is buying a property that was sold within the previous 6 months using a mortgage, the lender is likely to want to investigate things further.
The mortgage company’s requirements can include:
- The name and new address of the previous property seller
- The date the property was sold (as confirmed by the HM Land Registry records)
- How much was paid for the property
- The name of the conveyancers that acted on behalf of the previous buyer and seller
- If there are any connections between the previous seller and the current seller
- If the current (mortgaged) buyer has any connection with the previous seller
- Details of repairs and refurbishment work undertaken since the sale of the property (in the form of invoices, photography etc.)
Factors to Consider When Selling a House Within 6 Months
If you really have no choice but to sell within this time period, it’s worth taking some time to think about how you can achieve as close as possible to what you originally paid for the property.
Whilst there are more cash buyers out there than you may think, trying to dispose of a property in this way often requires extra effort and a good estate agent to support you during the process.
Housing Market Conditions
However, if you’re in a “seller’s market” you may find that cash buyers will look beyond the 6-month and look to offer close to your asking price – particularly if it fits their own criteria. We’ve also seen a situation where a buyer who originally wanted the property is delighted to see that it has come back to market.
Remember to present the property in the best possible way – perhaps by making some simple updates and redecorating work. Timing the listing around autumn and early spring – the most popular times to sell – can be a good idea (where possible).
Potential Buyer Suspicions
Potential buyers may be sceptical about a house sale made before 6 months of ownership. They may then be aggressive in their price negotiations leaving you in the lurch if you need to move fast.Letting the new buyer know the reason(s) why you need to sell so quickly and being completely transparent will often allay suspicions.
On this note, if there are issues with the property, you may want to think about either resolving them yourself or reducing the price to take into account the associated costs.
Legal and Financial Ramifications
The two main legal and financial hurdles home sellers face are early repayment fees and prospective buyer claims. These may include additional costs or penalties, such as late filing fees.To fully understand and conform to legal requirements, consult a legal professional for contract reviews, property searches, negotiations and ownership transfers.
Costs Associated with Selling a House Within 6 Months
Early Repayment Charges (ERCs) and Other Mortgage-Related Fees
Typically, lenders impose 1% to 5% of the remaining mortgage balance should you decide to pay back the mortgage early. Note there may be separate mortgage exit fees and, so-called “porting” fees if you’re moving the home loan to a different property.
Capital Gains Tax (CGT)
Capital Gains Tax greatly impacts early property sales, reducing your overall profit. The levy is determined by:
- Taking the purchase price of the property out of the selling price
- The resulting gain is taxed at the capital gains rate
- Your income tax bracket determines the tax rate.
In the UK, the prevailing capital gains tax rate for property transactions is 28% for gains made from residential homes and 20% for gains made from other chargeable assets.
Moving and Other Related Expenses
A rough estimate of engaging a moving company can be between £500 and £1,800 – depending on the size of your house and the relocation distance. In addition to the moving costs, companies may require a packing cost ranging from £250 to £900. Remember to compare quotes from multiple companies in order to find the best deal.
Estate Agency and Auctioneer Fees
These costs can range between 1 and 3% of the sale price of the property. They will typically only be due upon completion.Note that if you work with a fast sale company like Property Solvers, there will be no such fees to pay.