If you’re looking to sell a property fast or make an onward purchase using a mortgage, understanding why a property can be unmortgageable is essential. Fail to do so and you risk limiting your pool of potential buyers or having a future mortgage declined.
Looking for something in particular about unmortgageable properties? Find the information you want quickly, below...
- What does unmortgageable mean?
- What makes a property unmortgageable?
- My property’s unmortgageable: does this mean potential buyers can't use a mortgage full stop?
- How do I sell an unmortgageable property?
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To understand this, you first need to understand how mortgages work.
Mortgages are long-term loans taken out typically through a bank as a means of purchasing a property or land. Terms vary dependant on the lender, but most span around about 25 years.
Due to the sheer size of the loan, lenders also have a large range of mortgage criteria to ensure…
A. Their investment is safe.
B. You or your buyer fully understand what you’re committing to purchase.
It’s these criteria which are the reason why some properties are unmortgageable - you could call them a lenders’ checklist.
So, to be unmortgageable simply means that after assessment, the mortgage lender isn’t willing to finance a particular property. A complication for both buyers and sellers alike.
Properties can be unmortgageable for a wide range of reasons. So to help you out, here’s 19 that we think you should be aware of when looking to sell your property or make an onward purchase, plus some handy solutions to help you make the right decision.
Properties with structural defects – A property’s construction underpins not only its value, but its safety, so naturally it’s a high priority for mortgage lenders. Homes with structural defects or related issues like subsidence, dry rot and even damp can be MAJOR red flags that have a property deemed unmortgageable by lenders.
No kitchen or bathroom – One of the first signs of an unmortgagaeable property is a lack of either of these basic essentials. In the eyes of a lender, a property should be habitable, especially when applying for a residential mortgage. Hence why for some lenders, central heating is also required.
Leasehold properties with a short lease – For a leasehold property, its lease – particularly its length – is key to its value, as to renew a lease can be a costly process. Typically anything under 80 years is regarded unmortgageable.
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Freehold flats – Why do lenders not lend on freehold flats? Simple. As a partial owner of the building, the costs for any repairs, maintenance etc. fall partially on your shoulders - unpredictable costs that if sudden and large enough could prevent you from making your repayments. This is often why apartments in large period developments are hard to sell.
Derelict properties – For those looking to develop or demolish, securing lending can be incredibly difficult. You’d think if you had a low offer accepted on a derelict property that with development could be sold on for a healthy profit, lenders would welcome you with open arms, but no.
Lenders can only lend based on the property’s current value. So, if all that’s there is a worthless pile of bricks, all lenders see is a piece of land.
Non standard construction types – Steel and timber framed houses, prefabricated concrete properties and even listed character properties can very easily be classed as unmortgageable, due to their non standard construction. Properties like this are often costly to maintain and require specialist knowledge to do so, which is why lenders often look at them with a question mark (?)
Properties affected by development plans – While the expansion of infrastructure is great, if your house sits close to or on the construction route, it can become unmortgageable more or less overnight. This is because its value will most likely see a significant drop and in the worst case scenario, could even be scheduled for demolition. The expansion of airports, rail links and motorways are often the main culprits.
Flooding – It’s often difficult to sell a property in an area of high flood risk, as it proves expensive to insure and difficult to purchase using a mortgage. Often to sell one of these properties fast, you need a cash buyer.
Flying or creeping freeholds – Properties with flying or creeping freeholds either overhang or underlie a neighbouring property. Good examples being a balcony or a cellar. As a result, most lenders will class your property as unmortgageable unless you opt for a specialist flying freehold mortgage.
Part commercial properties – You’ll also need a specialist mortgage if your property is next to or above a shop or office. Even if its use has since changed from commercial to residential, it could still be classed as unmortgageable as often a standard residential mortgage won’t suffice.
Invasive species – It’s not just a property’s current condition that can render it unmortgageable. Invasive plant species can have a HUGE impact on its future value. Japanese Knotweed being the most common example – a species so strong that it can break through concrete! Have this show up on a survey and it could seriously damage your chances of a quick sale.
Properties in areas of mining, landfill or subsidence – Own a house in an area with history of mining or landfill, and most lenders will be worried, as both are known causes of subsidence – a condition where the ground below your house sinks and your house becomes misaligned.
Cheap properties – Although you might not think it, in many cases lenders won’t provide mortgages for some of the cheapest properties on the market. Typically, their threshold for lending sits at around £40,000 to £50,000. Anywhere under that and you’ll require a cash buyer.
Restrictive covenants – If a property has restrictions placed on its land use (typically by its previous owners) it can be a huge blow your chances of getting a mortgage. The most common restrictive covenants include the prevention of building, running of a business or converting an existing property into flats or apartments. Another one to look out for is any age restrictions with retirement properties.
Sitting tenants – Unmortgageable properties aren’t just limited to residential market. Rental properties with either sitting tenants or occupants under a regulated tenancy (a life-long tenancy), are also deemed unmortgageable. Not that this stops us from buying them!
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Missing planning permission or building regulations – Improving your property without the necessary permissions might seem like a huge time and cost saving, particularly for something relatively minor like a new boiler or rewiring, however when you come to sell it’s likely to come back and haunt you - particularly if you want to sell your property fast!
Reason being that once a lender surveys the property and discovers these additions, they’re in a very strong position to refuse any lending against the property, even if everything’s done to an extremely high standard.
Properties not registered with the land registry – Before offering a mortgage, any lender will have to confirm that you legally own your property. For this they require the title deeds.
High rise flats – Lenders tread carefully when it comes to approving a mortgage for a high rise flat. This is largely due to the safety concerns, particularly fire prevention. The majority of lenders will not lend on anything that’s above 4/5 storeys whether it be residential, student accommodation or part of a retirement complex.
Escalating ground rents - Leasehold properties typically come with a ground rent – a fee you pay for the temporary right to occupy the property. These costs are determined by the building’s management company, and are subject to change, so it’s important you check your lease… nowadays it’s common for freeholders to issue leases where the ground rent doubles every 25 years!
Not necessarily. To complicate matters even further the decision of whether your property's unmortgageable is down to each individual lender.
In short, this means that while some lenders will reject their application, others may be willing to offer them a deal, providing they meet certain criteria.
These could vary from taking out a specific type of mortgage, agreeing to certain surveys, paying a higher interest rate or putting down a larger deposit.
Even if lenders consider your property as unmortgageable, there’s still ways that you can sell your home.
You could decide (depending on the severity of the issue) to try and rectify it, so that in the eyes of lenders it’s no longer unmortgageable. If you choose to go down this route, it’s important to bear in mind all the time and costs that’re involved. Repairs of this nature could take months, even years, and cost a LOT of money.
Or you could sell your unmortgageable property to a cash buyer, like us. Take this route and you won’t be sat waiting for buyers to reach a deal with their mortgage lender. Instead, you’ll enjoy a cash sale with completion in as little as 7 days, all despite your property being unmortgageable.