When buying a house in the UK, there may be opportunities that appear to be an incredible bargain, but you may be faced with the issue of buying an unmortgageable property.
But what, exactly, is an unmortgageable property, and is it worth the risk of buying one?
Here, we take a closer look at the process and the potential pitfalls of investing in an unmortgageable home.
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How an unmortgageable property is defined
It’s a very simple definition: if a lender won’t give you a mortgage to buy a certain property, this property is classed as unmortgageable.
Most lenders tend to agree on which properties they won’t lend, unless they specialise on houses and flats other lenders won’t accept. Of course, this comes with higher rates and monthly payments.
Issues that make a property unmortgageable
Obviously, a derelict building will not attract a mortgage, but neither will properties that don’t have a bathroom or kitchen.
Properties that have structural defects of any kind will also come under the classification of unmortgageable. For example, houses or flats with dry or wet rot and damp.
We ourselves experienced the disappointment of trying to buy an unmortgageable property when our lenders survey highlighted structural issues with the property.
We had seen a few cracks but didn’t think they were anything too serious. The surveyor thought otherwise, and it turned out the extension had been built on a single brick garage wall.
As a result, the mortgage company wouldn’t touch it – they wouldn’t even consider lending us less or putting a retention on it. They just wouldn’t lend on that property, full stop!
Those are serious issues for a mortgage lender to consider, but there are other problems that could exclude a property from getting a mortgage. This includes properties:
- Too close to mine works, even closed mines
- Too close to landfills
- In areas recently flooded
- With a planning application that has been incorrectly applied
- With boundary disputes
- With a short leasehold, usually for less than 70 years
- With a defective lease
- That needs significant repairs
- That need to be demolished
- Of non-standard construction
- With a sitting tenant or be subject to regulated tenancy
- The presence of Japanese knotweed
Finally, another reason why a property may be unmortgageable could be simply down to value. For example, some lenders have a mortgage threshold in place, which is the amount they are prepared to lend above, and this figure can be as low as £50,000.
In some areas of the UK, you can buy a home, usually a terrace or a flat, for less than that, though it may need considerable decorating and repair before you move in.
The process of buying an unmortgageable property
So you found your dream home or potential investment property. But there is a catch: it’s unmortgageable.
This doesn’t have to be the end of the road, but to avoid getting yourself into a pickle, here is what you should do.
1. Get the full picture
There are many reasons why a lender won’t lend you on a certain property. So it’s vital to establish exactly what the issue is, because this will help you to rectify it.
The reason lenders won’t offer a mortgage for certain properties is because they think it’s too risky. This means they aren’t sure they will get back their investment should you be unable to pay back the money.
So whether you are buying your next home or an investment, unless you know what the problem is, it could turn out to be a nightmare, or you could lose money.
Find out what would need to be done to rectify the problem and what it would cost. One way to do that is to get a survey done on the property. A chartered surveyor will be able to tell you what the issue is, how to fix it and what it’s likely to cost you.
Once you have all the relevant information and are still happy to go ahead, you can move on to the next step.
2. Secure finance
By definition, it’s not possible to get a mortgage on an unmortgageable property. So you will need to find alternative funding if you are bent on buying an unmortgageable property.
It might be that a specialised lender would be willing to lend you money. There are such lenders, for example, for properties with subsidence or of non-standard construction.
However, to secure such a specialised mortgage, you have to pay higher mortgage rates and monthly payments. So it’s important that you make sure you can still afford it.
If you are a cash buyer, you have to make sure that you have enough money to buy the property and do any necessary work.
There is a chance you have to find alternative funding, if you were planning on getting a mortgage but now can’t. This could mean getting a bridging loan or a property refurbishment loan. These are short-term loans that are more flexible than mortgages.
A specialised loan broker will be able to advise and help you find the right loan for your purchase.
However, the rates will be higher, so you have to take this into account. But if you can make the changes that are needed to make the property mortgageable, you will be able to increase the value of the property.
And once it’s mortgageable, you can get a standard mortgage and pay off the bridging loan.
3. Hire an experienced solicitor
With finance in place, you can start the buying process. We would recommend hiring a solicitor who is experienced with unmortgageable properties.
The conveyancing process is complex enough without the added complication of the property being unmortgageable. So having a legal professional on your side who has the right knowledge and experience will make it less stressful for you.
4. Make property mortgageable
Once the purchase has completed, you need to undertake the work needed to make the property mortgageable.
If it’s meant to be your dream home, it’s in your interest to get it to a standard that will allow you or a potential buyer to get a mortgage. Not only will it increase the value of the property, but it will widen the pool of buyers should you decide to sell it again.
Even if this isn’t your plan, or at least not for a long time, you should consider that most of the reasons a lender won’t give you a mortgage are quite serious.
You don’t want to live in a home that has subsidence which could get worse or one that needs significant repairs, do you?
And if you are buying an investment, you want to make a profit. This is only possible if you can make the property sellable, which means fixing any issues. Turning it into a property that can be bought with a mortgage will also widen the pool of possible buyers, making it easier to sell it.
So is it worth buying an unmortgageable property?
An unmortgagaebel property can be quite a bargain. But there are risks attached to investing in one. And unless you should be fully aware of these, before deciding to buy it:
- Repairs to an unmortgageable property can be extensive and therefore expensive
- Even with the best planning, costly surprises are likely
- Financing can be a challenge and not accessible to everyone
However, if you do your research, get the necessary funding and account for a contingency budget, buying an unmortgageable property could bring you many rewards too:
- Your dream home for less
- The possibility to add value
- Possibility of big pofits
So is it worth the risk? Yes, it can be. But it’s vital that you know exactly what you let yourself into and understand the risks. Research and planning are important to make a success of it. Good Luck!
