Ask an expert – Is this Property Mortgageable?

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“Is this Property Mortgageable?”

When you apply for your mortgage much of how your application is assessed will be as expected. Items such as your income and expenditure for the lender to calculate your affordability of the loan amount required and your credit history will be a part of the application approval basis. These you will likely be familiar with or at least foresee as an integral part of getting your formal mortgage offer issued.  However, what many would-be borrowers fail to take into consideration is the property itself. As this is to be used as the security for the loan a lender must be satisfied that it meets their lending criteria for being acceptable. This can vary from one lender to the next but we’ve detailed a few of the common property types and situations that could give cause for your application to be declined or at the very least give you a restricted level of choice of mortgage provider.

What About Property in Poor Condition?

With property prices seemingly only moving in an upward direction it is not surprising that many would-be buyers look for a property that may need a little renovating that they can likely buy for a lower price. With a bit of hard graft and planning, over time the property can then be brought up to a more pleasing standard. However, what may be a project that you see as viable, a lender may have different ideas. They need to lend on the property in the condition it is purchased not what the future aim may be. So, how can you tell if the condition of a property makes it mortgageable? Well, this is a difficult one to give a definitive answer       to as it will depend on varying overall elements of your application. One of these being the amount of equity or deposit you may have. Expect a lender to be more flexible on a property when you have a loan to value of say 50% compared to 95%. Again, remember this is at the time of purchase and regardless of what the future value is projected to be. A lender will expect the property to have the basic functions of a working kitchen and bathroom facilities if you are to have any chance of getting a standard mortgage from the outset.  Ultimately the lender’s surveyor will adjudge the property and decide if it meets the lender’s minimum standards for security. This may be confirmed on their initial inspection however they may ask for additional specialist reports such as an electoral report or even a structural engineer’s report to be able to make their final judgement.  Following the surveyor’s final assessment you may find that a retention is imposed until certain works are completed meaning that the lender will hold some of the mortgage amount back on completion until these are carried out.

Construction Type

Not all property is built using the same materials. We are all familiar with the standard construction of brick and tile however over the many years that we have been building property in the UK, many different styles and materials have been used and continue to be used as technology moves forward. Some methods that have been used in the past such as precast reinforced concrete construction have been seen to be less hardwearing than brick and designated as defective. As such differing types of construction will either be seen as non-mortgageable or for those that are, possibly larger deposits or lower loan to values will be required. Many lenders will have quite specific criteria regarding construction types so, if it is non-standard it is always best to check this first before going to the expense of having a surveyor go out.

Property Type

We are all familiar with descriptions for a property such as a house, bungalow or flat and many of these will be fine when you look to obtain a mortgage however, there are certain property types that are not acceptable such as mobile homes. High rise flats are also a property type that lenders may or may not consider acceptable. This can be impacted by things such as balcony access and how many floors there are in a block. Properties with a large acreage can also be an issue for some lenders especially if it is used for commercial purposes and come with agricultural restrictions imposed upon them.

Leasehold or Freehold

Leasehold or freehold is the definition given to the type of property ownership, known as tenure. Typically flats or apartments will be leasehold and houses and bungalows will be freehold however, this is not the case in every situation. A mortgage provider may not lend on a freehold flat due to the more complicated legal arrangements this entails. This is not to be confused with a share of freehold – that is a different arrangement and one that causes much confusion with actual freehold flats. If unsure it is strongly recommended that you find this out prior to looking into your mortgage options as it will likely make a difference. Any lease is typically acceptable (subject to the lease being assessed by your solicitor) but for many lenders a minimum term on the lease must be confirmed at the time of application as this will likely have an impact on their decision. Short term leases can be problematic for obtaining a mortgage and expensive to extend so it’s worth looking into this when considering putting in an offer on a property.

Japanese Knotweed

Japanese knotweed is a weed that spreads extremely rapidly and has been evidenced to cause damage to property. Whilst there is still a relatively low number of property impacted by the weed, it is becoming more commonplace especially in certain areas. As more is discovered about the destructive nature of this weed the industry is becoming much more familiar with its control. Whilst it may still represent an issue with your mortgage approval, lenders are becoming much more flexible in their approach so if you are aware of this in regard to your property ensure you gather as much information as possible and obtain any reports available to you.

Buying at Auction

This is more of a precautionary note rather than an aspect of the property itself. Purchasing at auction, or via a modern auction that is growing in popularity, can provide major benefits when it comes to price. Do however bear in mind that if your offer is accepted it is likely that you will legally commit to the purchase on the day and will need to pay your deposit. Typically, this is a minimum of 10%. If you need a mortgage to purchase the property you do not wish to find out after the event that the property in question is unmortgageable. Therefore do as much research as you can prior, that may even include incurring costs such as a surveyor.

How Can You Protect Yourself?

Is there anything you can do to avoid committing to the purchase of a property that you might then be unable to secure mainstream mortgage lending against? Our best advice if you have any doubts whatsoever about the likelihood of securing a mortgage due to the condition of the property would be to do as much research as possible prior to incurring any cost, or at least keep this to a minimum. Speak to the agents involved with the sale and where possible open up direct dialogue with the vendor who will hopefully be knowledgeable about things such as the type of construction. Part of your mortgage application will involve a property assessment however a lender will make a judgement based on its own opinion of the property that may or may not even involve a physical inspection by their surveyor. So, if in doubt we would strongly recommend commissioning your own surveyor to provide a report to you personally.