Last thing you want as a property investor is an unmortgageable property if you can’t do a cash buy.
You have a property offer accepted and conveyancing is in progress and the lender comes back with feedback that they cannot mortgage the property.
The temporary spike in the adrenaline and anxiety that you go through to arrange the funds through an alternative channel is something you don’t want all the time.
What if, you as an investor are aware of most of the scenarios which bank deems a property as unmortgageable?
What if, you can cross check such scenarios within your property viewings yourself and avoid the misery later?
What if, you could have the foresight of alternative channel to raise funds even before your offer is accepted?
Exactly what this post is all about.
Identify majority of such scenarios that bank will review against, if a mortgage can be given or not based on the condition of the property.
Here is the list.
1) No Kitchen or No Bathroom:
The basic rule for a lender to give a mortgage is, the property has to be classed as habitable.
If you can’t do either of “Cooking” or “Cleaning” then that’s when you have an issue securing a mortgage.
There are few thoughts that are aired that, as long as you have a sink with a tap, you are back in the game with your race for mortgage as alive.
Well the bad news is:
It’s subjective and if bank deems this as “unusable” kitchen or bathroom, your race to secure mortgage will be over as soon as it starts.
However, to the good news:
You can spend some cash and just setup or fix the kitchen and/or bathroom to ensure you are given the mortgage.
Few of the lenders will work on the basis of part retention i.e. the retained amount is paid once the installation is done.
2) The Two Kitchens Problem
Two kitchens might sound like a fantastic problem to have given a family will have options and space.
Financial institutions see this as a problem since there is a possibility to sub-let the property with minimum modifications.
You can still get a mortgage if you or your mortgage advisor can discuss with bank on following points.
- Assure the banks to take out one of the kitchens backed up with a builders estimate for the removal work.
- Discuss and agree to pay for the revaluation post removal of the kitchen.
- Provide assurance that any additional modifications done to add rooms will be solely used by family members.
- Agree to retention of partial funds until the removal work is done.
3) Subsidence, Flooding And Mining Work
Few of the common reasons what we have come across in our case for not being given a mortgage was subsidence and few we interviewed were flooding and presence of mine shaft within 20 m or the property.
Whilst one may think these are good below market value deals at best price, are they?
They are being sold at below value due to the very reason.
Given subsidence and mining work done previously could lead to movement of property resulting in eventual structural damage of the property, it will be considered as unmortgageable property.
It’s obvious that you as a buyer cannot spend too much money to fix the subsidence issue.
One of our previous experience has been to help the seller to speak to their insurance provider when we found subsidence reported within the survey.
Insurer has agreed to fund the repair work out of seller’s insurance commitment which turned out to be a deal for us.
4) Commercial Neighbourhood
Imagine there is a property that you try to buy which is right next to a takeaway or a store which is open 24/7 or a pub which is open till late.
The imagination rings alarm bells within anyone’s mind let alone lenders on the insecurity that those commercial neighbourhood brings if a family has to live in the property.
Takeaway with risk of fire accidents, pub with risk of violence within the area late in the night, store with incoming customers 24/7 is considered as risk by lenders and mortgage can be declined.
You could still get creative if you can put some effort to dig a bit of history and the crime reports within the area to check if there is a case to present to the lender to provide with the mortgage.
This is based on assumption that the reports that come out are favourable.
5) Less Than £50K Threshold
Most of the lenders are not open to offer mortgages on properties that are less than the threshold value.
Without that knowledge on our very first buy-to-let we have offered £46.5K resulting in mortgage being declined, as we were purchasing under limited company.
There were some lenders who were willing to lend for properties worth £40,000. These thresholds keep changing so worth checking at the time of purchase.
We have been quick to come up with creative solution to raise our own funds, however was a lesson for future.
There are not many lenders who offer mortgage on a property if you are purchasing for less than £50K and those who are open to give offer it on a very high interest rate.
6) Structural Damages
Fire and Water are two key root causes for the damage caused within properties in UK.
If you have properties that are damaged due to either severe damp, damaged roof, cracks and like, the property will be deemed as unmortgageable.
Few of the common reasons include severe cracks within the walls that potentially causes structural repairs mandatory, damp that is a severe threat to living families, flooded exterior and interiors, risk of falling roofs and others.
One can always mention the repair work that will be undertaken post purchase of property with necessary insurances in place to secure the mortgage.
Not all lenders will be prepared to fund the property but you will have few who will work with the investors.
7) Non Standard Construction
Properties which do not confirm to standard definition
The walls of a property are constructed either with stone or bricks and the roofs with tile or slates, then you are into territory of properties termed non-standard construction.
The refurbishment of such properties require specialist skill and effort resulting in reduced value of the property. This induces considerable risk into lenders books.
If a property is classed as non-standard construction like concrete constructions, steel and timber framed skeleton structure, flat of shingled roofs then the property is at risk of being considered unmortgageable.
You can find full details of non-standard construction properties in this post.
8) Japanese Knotweed
One of the killer of value of a house price in UK is Japanese knotweed. Lenders are vary of this plant and is pretty much a guaranteed case of not offering a mortgage if found in valuation.
Key reasons why this is an issue is because it can grow at an alarming rate of 20 cm a day at times can grow through concrete rooting upto 3 mts deep.
Isn’t it funny that this was sourced from Japan in the past and was decorated as most interesting ornamental plant in the past until it started doing its damage to UK property space.
Good news though:
It can be treated for good to assure lenders on the repair work that will be done should the mortgage be given as planned.
Given, this can be done with minimal cost depending on its spread, it’s better to fix it first and secure the mortgage.
9) High Rise Flats
Most of the lenders deny mortgages to high rise flats whilst the developments are done to exceptional standards.
Many first time buyers or buy to let landlords get excited to secure their dream homes but the underlying issue only comes out when the banks don’t come forward to lend the money.
Given there are number of flats for sale at same time and most of the flats will be bought with a view to tenant them out, the risk to lenders is considered high.
Too many eggs in the same basket scenario and majority of tenants means more maintenance problems.
The risk also comes from the fact that when times are bad, history has shown that most of such properties are up for repossession given their high costs and inability of landlords to repay the mortgage premiums.
10) Derelict/Abandoned Properties
The basic rule again is the property has to be habitable for a lender to provide the mortgage.
Derelict properties are deserted for a long period of time and neglected to an extent that it needs lot of work to be done and even few parts to be demolished.
Rotted, abandoned for longer periods, pretty much in falling state are best examples of such properties.
Given the unknown in such properties on what is planned to be done and how much is it feasible to restore them to habitable state, lenders would shy away lending mortgages on such properties.
11) Short or Problematic Leases
When a lease expires, the leaseholder can take handover of the property or the site and implement his own future plans.
Needless to say this poses risk to the lenders with buyers defaulting on the property.
A pending lease of 70 years or less is considered as a risk zone for the lenders and the landlords.
This gets worse if the lease has issue in identifying the ownership of who owns the shared spaces and who is responsible to maintain the shared space.
12) Regulated Tenancies
If the property has been tenanted to a tenant before 15th January 1989 then the tenant could be considered regulated tenant.
There are complications from a seller and buyers perspective when you have a sitting and regulated tenants when it comes to eviction and in the event of death of regulated tenant.
In the event of death of regulated tenant the property is still under tenancy to their nearest family member or caretaker.
With such complications, banks consider the property in majority of cases as unmortgageable.
13) Planning and Disputes
When you own a property, the last thing you want is any kind of dispute on it.
If you there are any boundary disputes pending on the property with adjacent properties or if there has ever been an extension on the property without proper planning permission, it’s a risk that lenders would not accept and property will be considered unmortgageable.
That’s 13 scenarios that you are now aware off which you can add to your review checklist before you buy a property.
You can arrive at a high level understanding of what lenders will consider during valuation even before making an offer and ask relevant questions to the seller right at the beginning.
More you do your due-diligence, the more you save your start-up costs should the deal break due to property being considered as unmortgageable.
Disclaimer: None of the editors of Limitless Monks team are financial advisers or mortgage advisers. This post is solely based on their experience and editorial research. You should consult your mortgage adviser for your specific requirements and should not rely on above post for any professional decisions.