The Reasons a House Becomes Unmortgageable

Struggling to understand why a property could be unmortgageable? You're in the right place!

Selling an unmortgageable property is never quite as simple as it sounds. In most cases it's actually quite a headache.

The reason being that, unlike your average house, unmortgageable properties require a specific type of buyer - you could call them an acquired taste.

But that's not to say it can't be done. In fact, selling an unmortgageable property fast is pretty achievable, and dare we say straightforward, provided you know how.

Although, before you can reach that sale conclusion, you first need to be clued up on what makes a property unmortgageable, as well as how selling a 'problem property' can differ from the usual house sale.

Fail to do so and you risk limiting your pool of potential buyers or having a future mortgage declined. Hardly ideal!

Table of Contents

• What does unmortgageable mean?

• What makes a property unmortgageable?

• Are you stuck if you're selling an unmortgageable property?

What does Unmortgageable mean?

To understand this, you first need to understand how house mortgages work.

Mortgages are long-term loans typically used to finance the purchase of real estate, such as a house or a commercial property, and the loan is usually repaid over a period of 15 to 30 years.

This extended repayment period is what makes it a long-term loan, as opposed to a short-term loan, which would typically be repaid over a period of weeks or months. However, the exact length of the mortgage loan term may vary depending on the specific terms of the loan agreement and the borrower's financial situation.

Due to the sheer size of the loan, lenders also have a large range of house mortgage criteria to ensure…

A. Their investment is safe.

B. You or your buyer fully understands what you’re committing to purchase.

It’s these criteria which are the reason why some properties are unmortgageable - you could call them a lender’s checklist.

Peppermoney, a mortgage broker, have a detailed guide on mortgage criteria which specifically details some of the property criteria that is checked. This will give you a good idea of what issues you could come up against if you match your property to the criteria.

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.

What makes a property unmortgageable?

Generally, a property is deemed unmortgageable if it is considered by the loan company to be uninhabitable.

If you are looking to sell your property, then it's very important to know whether the buyer is going to be able to get a mortgage as issues with mortgability can not only slow up your property sale, but also cause it to chain break.

You might be surprised to find that there are a lot of reasons a buyer might fail to get a traditional mortgage on your property - in fact, we've detailed 19 of them!

1. 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.

2. No kitchen or bathroom

One of the first signs of an unmortgageable 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.

3. Leasehold properties with a short lease

For a leasehold property, its lease – particularly its length – is key to its value, as renewing a lease can be a costly process. Typically anything under 80 years is regarded as unmortgageable.

4. Freehold flats

Why do mortgage lenders stay at arm's length from freehold flats? Simple. As a partial owner of the building, your responsibilities for maintenance and upkeep aren't just limited to that of your flat, meaning the costs could differ substantially.

Unpredictable costs that could prevent you from making your repayments and as a result, see you tumble into arrears. Hence why apartments in large-period developments can prove to be a hard sell.

5. Derelict properties

For those looking to heavily develop or demolish, securing lending can be a hefty challenge. Initially, you'd think that getting a low offer accepted on a derelict property, which had development potential would be kudos in a lender's eyes, but no.

Despite the fact you could well sell it on (once developed) for a healthy profit, lenders only lend based on the property’s 'current' value. So, if all that’s there is a worthless pile of bricks, your million-pound development opportunity is merely just a piece of land.

6. 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.

If you've heard of a BISF house, Airey house, Cornish unit, prefab and so on, then you're along the right lines.

reason being that properties like this are often costly to maintain and require specialist knowledge to do so. Specialist knowledge that doesn't come cheap! Hence why lenders often look at them with a question mark (?)

7. 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 (cough) the now, mostly scrapped, HS2.

The reason being that a consequence of these developments will likely be a significant drop in value, be that because of the value of the land or the fact that the house is scheduled for demolition.

The expansion of airports, rail links and motorways are often the main culprit.

8. Flooding

If a property is in an area of high flood risk, then selling it can be tough.

Due to the high risk, these properties are also expensive to insure and difficult to purchase using a mortgage - for the lender, it'd be a HUGE risk! To sell these properties fast, you often require a cash buyer (like us).

Want to see if your property's at risk? Investigate its risk of flooding here.

9. Flying or creeping freeholds

If a property has a flying or creeping freehold, then beware - it could be unmortgageable. Properties with either overhang or underlie a neighbouring property.

Good examples of which are a balcony that overhangs private property or a cellar that extends under a neighbouring house. In this case, a buyer may have to opt for a specialist flying freehold mortgage in order to purchase your home.

10 . Part commercial properties

Buyers will also need a specialist mortgage if your property is next to or above a shop or office. And this even goes for those properties that have been granted 'change of use' and have since changed from commercial to residential. Therefore, in this situation, it's likely that the standard residential mortgage won’t suffice.

11. 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 their future value too. Japanese Knotweed is the most common culprit – a species of plant that's 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.

12. Properties in areas of mining, landfill or subsidence

Own a house in an area with a history of mining or landfill, and most lenders will have raised eyebrows.

Both are known causes of subsidence – a condition where the ground below your house sinks and your house becomes misaligned. And by misaligned, we mean unmortgageable.

Worried your house may be affected by subsidence? Click here to see if you're at risk.

13. 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. What? Why?

Typically, their threshold for lending sits at around £40,000 to £50,000.

The reason is that lending small amounts doesn't actually make lenders all that much money. It's on the larger amounts that stretch over a longer term that they generate the best returns. All of which leaves you requiring a cash buyer.

14. Restrictive covenants

If a property has restrictions placed on its land use (typically by its previous owners) it can be a HUGE blow for buyers looking to get 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. In some cases, there could even be an age restriction on retirement properties.

15. Sitting tenants

Unmortgageable properties aren’t just limited to the residential market. Rental properties with either sitting tenants or occupants under a regulated tenancy (a life-long tenancy), can also be deemed unmortgageable.

The reason being that a life-long tenancy is much as it sounds - the landlord has agreed to let the property to the tenant until they die. So in the case that you were to default on the mortgage, the property would need a very specific type of buyer in order to be sold on. Not that this stops us from buying them!

16. Missing planning permission or building regulations

Granted, improving your property without the necessary permissions might seem like a HUGE time and cost saving in the moment.

However, when you come to sell, it could well come back to haunt you. Once officially sold (i.e. completed), the new buyer would be responsible for any of these missing permissions.

So, in the case a surveyor flags this up, you could well find yourself actually loosing money, or in other words being gazundered.

17. Properties not registered with the land registry

Before offering you a mortgage, lenders will have to confirm that you legally own your property. For this, they require the title deeds, which, if you can't find them, could well hinder your sale.

Check if your property is registered here.

18. High-rise flats

When it comes to approving mortgages for high-rise flats, lenders tread carefully.

The bulk of the reason would be fire prevention, especially since recent talk of newly-built high-rise buildings being fitted with highly flammable cladding.

As a result, the majority of lenders will require a full cladding survey to be done before confirming a mortgage offer. And as a general rule, they'll not lend on anything that’s above 4/5 storeys, whether it be residential, student accommodation or part of a retirement complex.

19. Escalating ground rents

Leasehold properties typically come with a ground rent – a fee you pay for the temporary right to occupy the property.

The cost of a leasehold fee is dictated by the building’s management company, and (if you read the small print) 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!

Are you stuck if you're selling an unmortgageable property?

Not necessarily.

You see, to complicate matters even further, the decision of whether your property is unmortgageable is ultimately down to each individual lender.

All of this means that some lenders will reject applications, while others will accept, provided certain conditions are met. So while your buyer may be restricted when getting a mortgage, they may still be able to get their hands on one. However, to do so, they may have to...

• Apply for a certain type of mortgage

• Have your property pass certain types of surveys

• Paying a specific interest rate, usually higher to cover the increased risk

• Put down a considerably bigger deposit, typically at least 20%

There are also alternative options

Don't fear, you still have options even if your property is considered to be unmortgageable by the mainstream banks.

Rectify and repair

In many cases, the easiest and most logical way would be to confront the unmortgageable issue head-on.

Now, while of course this would depend on the severity of the issue, it could be a way for you to escape an unmortgageable reputation.

However, if you do choose this route, it's important that you bear in mind that repairs of this nature could take months, even years, and cost a LOT of money.

But if spending that money helps you justify a significantly higher price, then it may well be worth it.

Unmortgageable properties appeal to:

• Investors

These properties offer an opportunity to investors. Typically, if a property is unmortgageable it will be offered to the market for below market value due to the work required. This makes it attractive to investors looking to build a portfolio or even flip the house.

Investors are often cash buyers, or they will buy with a loan called a Bridge. As an example, we work closely with a company called Together Money, and they don't have the same limitations as a standard bank, and therefore often lend on properties deemed unmortgageable. Here's a snippet from their website:

"We use our common sense to consider applications from customers in all kinds of unusual circumstances, even if mainstream banks and building societies have previously turned down a lending application." - Together Money

• Auctions

While agents are the usual method of sale, with an unmortgageable property an auction could be more fitting.

You see, unlike the open market where the majority of buyers rely on a mortgage to buy, at auction, buyers are usually armed with cash.

Hence why a good number of problem properties are auctioned off, usually to buy-to-let investors or property developers. Saying that, selling your house at auction doesn't come cheap. For starters, there's a fee for listing the property.

Then there's one for marketing it, and even a commission when you come to complete it. Not ideal when you're already taking a hit on the price as it is.

• Cash Buyers

If neither of the above sounds like a viable option, then you could just cut ties with your property completely for free.

You see, to some buyers (particularly those with cash), unmortgageable properties are actually quite attractive.

Exactly why approaching an industry-leading cash buyer like us would in many cases, be the most straightforward solution.

Do so and you won't be sitting waiting for buyers to reach a deal with their mortgage lender or having to hire a specialist tradesman.

Because as a cash buyer, we're not picky - we buy ANY house in ANY location and (crucially) in ANY condition! What's more, we don't mess around - we could have the cash in your bank within as little as 7 days.

Nor will you have to pay a penny in fees - the cost of your sale is on the house (get it?).

So, if you're looking to sell your unmortgageable property fast, then...

Get an offer today!