Why A Property Can Be Unmortgageable And What You Can Do About It
I was asked a question the other day, “how do you make an unmortgageable property mortgageable”. I was initially stumped, because I had not heard such a question phrased that way before. Then, after a longer chat I realised that I had actually been asked about something that I had been doing on and off for many years.
When a property is labelled as being unmortgageable, there can be many interpretations of what seems a simple term. It might mean it is genuinely and totally unmortgageable, for example it is on the edge of a cliff and half the garden has just fallen into the sea. It could be that there is some administrative problem that means the lender will not get involved until the solicitors, and sometimes the courts, sort the problem out. Or it could just mean that a particular lender doesnt want to lend on that particular property because it doesn’t fit their own lending criteria, but another lender would be fine with it.
I’ve put together 20 of the most common reasons why a property can be labelled as unmortgageable, together with possible solutions to the problem. I wrote it for a new online website that specialises in introducing people who need a mortgage to the most suitable brokers that can help them. That website should be ready to be published in about a week or so, but in the meantime I thought I would post it here. As this is the type on information being planned for the new site, I would be interested to find out what the reaction is to it. I also hope it might be useful for anyone that has been told the property they want has been called “unmortgageable”.
Please leave a comment, I would really appreciate it!
20 Examples Of Why The Property You Want May Have Been Labelled Unmortgageable And What You Can Do About It
1. The Property is of Non-Standard Construction.
This information should be available to you from the very beginning, either from the seller if it is a private sale or made clear in the Estate Agents details. Finding out that your chosen lender will not grant a mortgage due to the construction after your application or survey should never happen and has wasted your money and time.
Properties are considered to be “Standard Construction” if they are built of stone or brick and have a tile or slate roof. Only a tiny percentage of properties built in recent years are not standard construction. Housing stock however is made up of millions of properties, many of which are over a hundred years old and consist of many different methods of construction including buildings built of Timber, Asbestos, Corrugated Iron, Concrete Panels, Mundic, Cob and those with a Thatched Roof.
In addition to the actual material of construction there are also System Built Properties which include many local or regional types, many of which enjoy some unusual names such as Cornish Unit, Dorran, Gregory Parkinson Frame, Stent, Stonecrete, Underdown and Wates among many others.
If you are looking to buy a property of non standard construction you will need to do some research first. While most of the well known lenders are likely to be less helpful, smaller and more specialist lenders may well be more sympathetic. Ask the seller if they have a mortgage and who it is with, after all , if that lender has accepted it before then why not ask them again. Talk to a local surveyor about the property and ask if they are readily bought and sold in the area.
Mortgages for properties that are of non-standard construction are available in many instances. Using a broker who understands the problems associated with a property of non-standard construction and who has access to the specialist lenders that almost certainly will be needed will give you the best chance of getting the mortgage you want. It has to be acknowledged though, that it is possible that due to many reasons, including the overall mortgage market conditions, it may not be possible to get a mortgage at all in some situations.
2. The Property Has Structural Problems
This is probably one of the most common reasons for a house to be labelled unmortgageable, and the most common structural problem is damage caused by subsidence. A lot of lenders will just say “no” as soon as they see that a property has suffered from a subsidence problem. However, there are some lenders that will look at things on a case by case basis.
There are a number of reasons for a property to fall victim to subsidence, and there are different solutions used to fix those problems. Some are regarded as being more serious than others. If you are looking to buy a property that has suffered in this way then you must get some professional advice. The first two things to do is to ask for all the paperwork relating to the problem so you can see exactly what has happened, when and why. The next thing, if you are serious about going ahead, is to have a full structural survey done on the property. This will give you all the information you will need in order to decide whether to proceed or not. It will also give you the information you need in order to approach lenders and get an initial reaction to your enquiry.
Your chosen lender will not take your full structural survey as a valuation, so you can expect to have to get one of those as well. Your lender may however be interested in seeing your full structural survey as well.
Subsidence, although the most common problem, is not the only issue that can arise. Other problems can include wall tie failures, lack of a damp proof course and concrete floors suffering from problems such as a sulphate attack which will call weakness and rot.
It might be that the structural issues you are faced with are such that no residential mortgage lender would offer a mortgage on the property. In some cases you may want to widen your financing options and look at property development loans, or even bridging finance that will give you the cash to put the problems right before then going on to get a conventional mortgage. An experienced broker will be able to help you decide which route is best for you.
3. The Property Has Severe Dry or Wet Rot
The Dry or Wet Rot would have to be pretty severe for a lender to regard the property as unmortgageable, but it is possible. As with a property with structural issues, before you can consider your options you will need to find out the extent of the Dry or wet Rot problem. How long it has been there, where abouts is it and what is or was the cause.
A specialist survey will give you the answers to all those questions and then you can explore your financing options using a broker familiar with finding specialist mortgage lenders. They may also be able to find a lender offering development finance or who has a specialist product for renovation projects.
4, The Property Is In An Area With A History Of Flooding Or Subsidence
For many lenders a property that has a history of subsidence or flooding is a red flag. For others the fact that the property you want is in an area that has been deemed susceptible to flood or sibsidence is enough for them to refuse a loan.
With many new properties being built on flood plains, this is an issue that applies not just to older properties. The government provide a flood warning information service, click here to find out if the area in which you want to buy appears on their flood risk register, it will tell you whether your property is at risk, even if it has never flooded before.
Some areas are more prone to subsidence than others. One major cause is the risk associated with former mining areas. Using this link is a straightforward way of seeing if the property you wish to buy is in a vulnerable area.
In reality there is little you can do with regard to this problem as it is a risk inherent to the area rather than the specific property you want to buy. A talk with an experienced broker with local knowledge, maybe useful but is unlikely to end with a positive outcome.
5. The Property Does Not Have A Kitchen Or A Bathroom
Probably a bit niche, but one of the rules that most lenders impose is that the property should have the basic essentials to live there. If the property you want is lacking in either of these, there are two solutions. One, you persuade the seller to put a kitchen or bathroom in or, two, you go down the finance for renovation route and put it or them in yourself and then remortgage to a conventional residential mortgage as soon as possible.
Either way, if you have your heart set on this property, a solution should be straightforward to sort out.
6. The Property Is Otherwise Uninhabitable
The three things to look out for here are whether the property is derelict (or partly derelict), not weatherproof or not secure. There is a little scope for interpretation here, but generally speaking a lender will not lend on a property that does not meet any one or more of this this criteria.
It doesn’t mean however, that you cannot find the finance to buy it. It just means you won’t be able to finance it with a standard residential mortgage.
Once you are looking at properties that are unhinhabitable, you are venturing into the area of property development. The good news is that there are a number of lenders that specialise in providing finance for these projects and a good broker will be able to help tailor the funding to your specific requirements.
7. The Property Is Leasehold With A Very Short Lease
Residential mortgage lenders generally regard a lease as being short if it is less than 70 years, some will say 80 years.
Leases tend to be between 99 and 125 years, though they can be shorter or longer. The value of the property with leases of this length are not that different from their freehold counterparts, that value starts to depreciate once it falls below 99 years and the rate of depreciation accelerates the shorter it becomes. Once it gets to 70, or even 80 years, lenders get nervous about the security of their mortgage as the value of the property depreciates and will start to decline applications.
Obviously, if you are a cash buyer then buying is not a problem. It might well be a problem though when it comes time to sell and your potential buyers can’t get a mortgage.
There are some specialist lenders in the short lease residential market, but you may find their fees and interest rates uncompetitive, plus you will still have a problem if and when you wish to sell.
Often leaseholders have the right to extend their lease and the route to doing this is referred to as being either Formal or Informal. Further information about how to this is available through a Government advice service which can be found by clicking here
If you want to extend the lease of a property you are buying, you will normally have to wait two years to do so. It is an area that requires proper legal advice, and if you find yourself in this position you should discuss it with your solicitor at the earliest opportunity.
Extending a lease does involve costs and can have consequences for other matters such as ground rent and the value of the property. Before you proceed with any purchase you should establish all these costs and have your solicitor set out exactly what the situation is in writing for you.
8. The Property Is Affected By Potential Development Plans
One of the processes undertaken by your solicitor or conveyancer during the buying process is to undertake what is called a “Search”. Part of this will entail finding out about any proposed plans that will substantially effect the value of the property you wish to buy.
Some major developments may be well known, if you are looking at a house that is going to be on the doorstep of HS2, then you don’t really need to be told what effects it may have on the value of your potential new property.
Other planning proposals might not be as well known and finding out that a new road is being build nearby, or an existing road is going to be upgraded to a dual carriageway may well persuade your chosen lender that they do not wish to lend.
Nearby building developments, proposed change of use for properties on your doorstep from residential to commercial and even an application for a loft conversion by your potential new next door neighbour may affect the value of your property and have an influence on how much your lender is prepared to lend, if at all.
How you deal with situations that arise from discoveries uncovered through a search is very much a case by case issue. A major development such as a new railway line or dual carriageway is likely to have a serious, if not terminal, consequence for your house buying ambitions. Smaller issues such as a proposed extension to a neighbours property is unlikely to prevent a mortgage being granted, but the figures involved may have to be revised.
9. The Property Has Not Been Registered With The Land Registry
First of all it might be useful to explain what the Land Registry is and does. In many ways it is like the property and land version of the DVLA. It’s job is to hold the records of ownership for properties and land, rather than cars which is what t he DVLA does, owned in the UK. When you buy a property then an application is made to the Land Registry for you to be shown as the owner of that property.
About 90% of all properties in the UK are registered with the Land Registry, this means that in the vast majority of cases the buying and selling of property goes through the registration process quickly and easily. Click here to go to find out if your property is registered with the Land Registry.
Situations can arise though where the property you wish to buy has never been registered with the Land Registry. This can be for a number of reasons, a common one being that a property may have been in a family for a very long time and was acquired before the rules are what they are today. The problem it creates is that without the property being registered with the Land Registry, the person trying to sell the property has to prove it is their’s to sell. No mortgage company will lend on a property where there is a legal question mark about who owns it.
In most cases this problem will slow down the sale. Solicitors will know what to do in each case in order to get the property registered and move the sale on. In rare cases however, the problem can remain unresolved and the lender will refuse the loan.
10. The Property Does Not Have The Necessary Planning Permission or Building Regulations Approval.
If the property you wish to buy has had any work done on it, such as an extension, loft conversion or even a porch then, depending on the rules applicable to that work, it is likely that planning permission from the local authority was required for the work to go ahead.
If work has been undertaken without the required permission being sought and granted, it will stop your lender approving your application. It is possible to apply and be granted retrospective approval after the work has been done, and providing this has been done then the lender will look at the application again. This process however may take some considerable time and you may not be in the position, or frame of mind, to wait to see what the outcome may be.
Other work on the property such as rewiring, a new boiler or replacement doors and windows should have certificates showing that the work has been carried out to compliant standards. If these certificates are not available then at the very least it will slow the process down while the lender satisfies itself that the work done was of a professional standard and complies with all safety regulations.
In most cases where the required certificates are not available, it should be possible to go back to the company that undertook the work and get replacements or copies. Where the building work is of a major nature and planning permission not obtained, an order can be made to put the property back in the position it was in before the work was done. This can involve the demolition of things like extensions. Apart from the considerable delay this will cause in the buying and selling process, it may well have a considerable impact on the value of the property and just how much any lender is willing to lend.
11. The Property You Wish To Buy May Have One Or More Restrictive Covenants.
A number of properties are subject to Restrictive Covenants, these are legal clauses that place rules on such things as who may live there or what the property may be used for.
Quite an obvious one is where a property is part of a development that is limited to older people, and owners are not allowed to be under age 50, or whatever age has been designated for that particular development.
While a condition that prevents the under 50’s buying the property is an easy one to see and will mean that anyone under 50 will avoid even looking at these properties, other restrictions may not be so obvious. Some properties found in rural areas may have a covenant stating that the property can only be bought by local people or just agricultural workers.
Restrictive Covenants apply to new builds as well as older properties. Some of the ones on new developments might include things such as you may not be able to use the property for commercial purposes or park a commercial vehicle at your property. The term “commercial purposes” can cause some alarm amongst the self employed. It could be argued that a writer, artist or IT consultant working from home is using the property for commercial purposes. Usually common sense prevails in these situations as these are not the people it is designed to prevent from living there.
These clauses are designed to stop people working from their property in such a way that it causes problems for the neighbourhood, such as encouraging large number of clients or customers coming to the house, tradespeople filling their garden with the tools and raw materials of their trade or several lorries and other commercial vehicles blocking or partly blocking the road.
Another example would be a restrictive covenant preventing an owner from altering the property by adding an extension or making other structural changes. A property with such a restriction couldn’t be bought and then changed into flats for instance.
In most cases a property with a restrictive covenant wouldn’t be a reason for a lender to absolutely refuse a mortgage. Some covenants may cause your lender to rethink the amount they are willing to lend as it is possible that the value of the property maybe affected though.
It is the job of your solicitor to establish whether any restrictions exist and to explain the importance of them to you. Your first course of action when faced with a restrictive covenant is to discuss what options are open to you with your solicitor and to advise your chosen lender as soon as possible.
12. The Property Has Either A Flying Freeold Or Creeping Freehold.
This occurs when a property goes over or under a neighbouring property. Typical examples include a property with a room over a neighbours garage, or a balcony overhangs a shared access.
Lenders are not huge fans of Flying and Creeping Freeholds due to the blurred line of the responsibility of upkeep, but many will accept them as long as it affects a relatively small area of the property. Others may have a policy of not accepting them at all. If the area in question is a large area in comparison with the overall size of the property, then there is a possibility your application will be declined.
When you first show an interest in buying the property, the estate agents details should include details of the Flying or Creeping Freehold if there is one. Knowing this from the start should mean you can discuss it with your preferred lender before making the application.
13. Properties With Escalating Ground Rents or Ground Rents That Are Expensive.
Ground Rents apply only to leasehold properties and on the whole are set at a very modest or nominal level, perhaps up to a few hundred pounds.
As the leaseholder of a property you may well have to pay this Ground Rent to the freeholder of the property annually. In some cases it can be a condition of the sale that this Ground Rent will increase each year by a certain amount, or the Ground rent has bet set at an amount well above what can be described as a nominal level, sometimes into the thousands of pounds.
Lenders regard problems with Ground Rents in a similar way to that of short leases. With short leases, the value of the property can be adversely affected as the years remaining on the lease decrease. In the same way, the value of a leasehold property can be adversely affected by an expensive or increasing Ground Rent. With the possibility of the property value being negatively impacted, a lender will look very carefully at the long term security of their loan, and in some cases decline to lend.
In recent times a number of new developments have included these types of Ground Rent increases and it has been only when these owners have tried to sell that problems have surfaced due to the fact that new purchasers have experienced difficulty getting a mortgage.
If you are looking to buy a property with an increasing Ground Rent you should not only be considering how easy it will be for you to be granted a mortgage, but also how easy will it be to sell at some time in the future when a future purchaser is looking to obtain a mortgage in order to buy your property.
14. The Property Is Too Cheap!
Unbelievably, this is possible. If you are looking at a property with a sale price of around £40,000 – £50,000 (and they are out there) then it will pay you to check what the minimums permitted by your chosen lender.
All lenders have their own terms and conditions, and a minimum property value will be one of them. If you find yourself in this situation, then a chat with an experience broker should help you find a solution.
15. The Property Is Situated In An area Where There Is A High Proportion Of Council Houses Or Social Housing.
Lenders take into account many factors when deciding who to lend to and on what type of property. One of which being the location. Buying a house in an area predominantly populated by council houses isn’t in itself a problem. However, a lender has the power to specify just what type of business it wants and as such may have terms and conditions that would mean such an application was declined.
The chances are very good that you will find a lender that is willing to help you. It may not be your first choice of lender and the mortgage product might not be the best on the market, but a good broker will be able to help you find the best option from a possibly more limited range of potential lenders.
16. The Property You Want Is In A High Rise Block Of Flats.
Most lenders will decline an application for a mortgage on a property in a block of flats that is more than 5 storeys high. Especially outside a major city such as London or manchester.
Mortgages are possible on such properties, but they are likely to be at a higher interest rate and from more specialist lenders.
Bear in mind also that they will be leasehold properties as well, so you will have the added possibiity of dealing with any issues regarding that as well.
17. You Wish To Buy A Listed Building.
Listed Buildings come with responsibilty, rules and regulations. There are usually Retricting Covenants and, depending on the degree of Listing, you could find yourself responsible for higher maintainence costs and costs of repair. Many lenders will not offer a mortgage, but many specialist lenders will.
If you are looking to buy a listed property, you need to do a lot of research first. Talk to a broker that understands your requirements as far as the finances are concerned, and talk to your solicitor about what it means to be responsible for the upkeep of a listed building.
The NHLE (National Heritage List for Engand) is a searchable register that can tell you if a property is listed. Click here to find out more.
18. The Property May Not Be Insurable
Finding out about how much it will cost to insure, and uncovering any other insurance related problems prior to submitting a mortgage application is always a very good idea. A lot of the insurers found on comparison sites concentrate on targeting the standard risks and if the property falls outside of these then you could have a problem on your hands.
Fortunately, as with mortgage brokers, an experienced and qualified insurance broker will be happy to discuss the problem with you and in the majority of cases find the correct cover with an appropriate insurer.
One of the conditions of having a mortgage is that the property must be appropriately insured at all times. It is possible that a lender may offer a mortgage on a property, but it is impossible to have it propertly insured. This can happen in an area susceptible to flooding or subsidence for instance.
It is a good rule of thumb that if you are looking to buy a property which you cannot insure, then you should think very hard about whether it is worth buying.
19. The Property Is Regarded As Being A Commercial Property Or Part Commercial Property.
This is an easy one to deal with. A residential mortgage will not be granted on a commercial property. Even one with a residential area included within it.
If you are looking to buy such a property, then you need to be looking at commercial finance. Raising this type of finance is a speciality in itself and as such you should be talking to someone experienced in this area.
20. The Property Is Blighted With Japanese Knotweed Or Another Type Of Invasive Weed.
Lenders will not lend on a property that has Japanese Knotweed or similar destructive plants growing on or nearby the property. Fortunately, specialist companies clan eradicate the plant at a relatively modest cost. Once that has been done, then a mortgage application can be expected to go ahead.
Why This Has Been Published On This Site
I wrote this in response to a specific question and the initial idea was for it to be published on a new website for which I am acting as a business consultant.
This new venture is designed to put people who need specific advice about mortgages and commercial finance in touch with brokers who are happy to give a personal service and are experienced in dealing with enquiries that often would be regarded as “non-standard”. A simple enquiry form completed online will be allocated to a broker qualified and experienced with that particular type of enquiry.
It is going to be a couple of weeks before that site is ready to go live, so I thought I would test the water by publishing it here first. Although the new site is not live yet, the business, Means To A Lend Ltd is live and ready to deal with enquiries.
This site is nowhere near where I would like it to be and a lot of work needs doing on it, not least getting all the links to work. However, it is fine for the purpose of putting this blog out there to be read and hopefully commented on.
If you have any questions as a result of reading it you cal either send me an email using the address Emeritusbroker@gmail.com or send a text to 07759049911