Selling Problem Properties: 18 Reasons your Property Could be Unmortgageable
What Does Unmortgageable Mean and Why Does it Matter?
If you’re selling your house then you need to consider whether your buyer will be able to get a mortgage. Not every house or flat qualifies easily for a mortgage. Because most buyers need a mortgage to buy, a property that is unmortgageable can be difficult to sell, can see its value slashed by thousands of pounds, or even be totally impossible to sell at all.
Here are 18 reasons why your property might be unmortgageable, and some solutions for selling your house even if it is unmortgageable:
- The property is uninhabitable. If your property is in such a poor condition that no one could live in it, banks and building societies won’t lend on it. Property is uninhabitable if it is derelict, partly derelict, not weatherproof or not secure.
- Properties without a kitchen or a bathroom. A property without either of these basic essentials won’t qualify for a mortgage. Some lenders won’t give a mortgage on a property with no heating either.
- Properties with structural problems. This is one of the most common reasons for a house being unmortgageable. Damage due to subsidence is the most common type of structural problem. Other structural problems include lack of a damp proof course, wall tie failure, a house with red ash flooring or concrete floors which are subject to sulphate attack.
- Properties of non-standard construction. If your property isn’t built of brick or stone with a slate or tile roof it may be considered to be of non-standard construction. Common types of non-standard construction include timber buildings, thatched buildings, cob, mundic, asbestos, corrugated iron, concrete frame and concrete panel houses. Non-standard construction includes so-called system-built properties. Types of system-built properties include Airey, Boot, Cornish Unit, Dorran, Dyke, Gregory, Hamish Cross, Myton, Newland, Orlit, Parkinson Frame, Reema Hollow panel, Schindler and Hawksley SGS, Stent, Stonecrete, Stour, Tarran, Underdown, Unity and Butterley, Waller, Wates, Wessex, Winget, and Woolaway. Following the tragic Grenfell Tower fire, some buildings with certain types of exterior cladding are now unmortgageable.
- Japanese Knotweed and other invasive weeds. If Japanese Knotweed or other invasive weeds are found growing on the property or even just nearby many lenders will refuse a mortgage. Japanese Knotweed grows fast and can potentially cause structural damage to property.
- Severe damp, dry rot and wet rot. These are all considered to be structural defects that can be bad enough to make a property unmortgageable.
- Properties with a history of subsidence or flooding. Plus in some cases properties may not be mortgageable if they have not been flooded or have not experienced subsidence but simply because they are at risk of it. Subsidence can be a particular risk in ex-coal mining areas. You can check here to see if your property is in a flood risk area. You can check here to see if your property is in an area which is liable to mining subsidence.
- Cheap and low-value properties. Most lenders won’t offer mortgages of less than around £40,000 or £50,000, so properties worth less than this can’t be mortgaged.
- Leasehold properties, with a short lease. If you are selling a leasehold flat or a leasehold house most lenders won’t consider lending if the lease is considered short. Short leases are usually those that are under about 70 years.
- Missing planning permission or building regulations approval. If a property (or part of it such as an extension) has been built without any necessary planning permission a mortgage may be refused. If your property has had certain building work done, and this work doesn’t have building regulations approval from the local council and you don’t have a certificate of compliance to prove it, then a lender may say no. This includes work such as replacement doors and windows, rewiring or a new boiler.
- Properties that are commercial, or part commercial. If your property is above or next to a shop or office or if part of it is or has been a shop or office then a standard residential mortgage won’t usually be available.
- High-rise flats. If your property is in a high rise flat or tower block then it may be impossible to get a mortgage. Many banks and building societies refuse mortgages for flats over five storeys high.
- Council - or social housing. If your property is in an area with a high concentration of council or social housing properties many banks and building societies may be reluctant to lend on it.
- If your property has never been registered with the Land Registry. And if you don’t have any title deeds for the property. Lenders won’t offer a mortgage until ownership of the property has been proved and the property registered with the Land Registry. You can check to see if your property is registered with HM Land Registry here.
- Flying freeholds and creeping freeholds. This is where part of your property goes over or under a neighbour’s property, or vice versa. For example, a bedroom over a neighbour’s living room in a terraced property. A mortgage may be refused or only given as long as the flying freehold is within certain size limits.
- Properties with expensive or escalating ground rents. This can affect many properties built within the last few years. If the annual ground rent is only a nominal amount it should not be a problem. However, if the ground rent is hundreds or thousands of pounds a year, or rises sharply every 10/20 years, this could affect mortgageability. This problem affects an estimated 100,000 homes in the UK. Read more about the so-called escalating ground rent scandal here.
- Properties with certain restrictive covenants. There can be mortgageability problems if there is an agricultural occupancy clause or local occupancy clause which restricts occupancy to only agricultural workers/local people. Also for a property with an age restriction, ie. over 50s property. It is a good idea to ask a solicitor to check your deeds for any restrictive covenants and other issues with the title of the property that might cause issues before putting your property up for sale.
- Properties blighted by development plans. If there are plans for major development work nearby - a new road, a new railway (like HS2) or airport expansion - then lenders may be cautious about lending.
Exceptions to the Unmortgageable Rule
To make things even more complicated, there are no hard and fast rules on whether your house is definitely unmortgageable. It depends on the individual lending policy of each bank or building society. Some banks and building societies will refuse problem properties outright, while others will consider difficult properties with some strings attached.
But in cases where a lender will lend on problem property they will often charge a higher interest rate, only offer a lower loan to value or LTV, or demand a higher deposit. This may mean that mortgage buyers cannot afford to buy your property.
Solutions if Your Property is Unmortgageable
If your property is unmortgageable then there are still ways you can sell your home.
Firstly, you could consider correcting the problem that makes your home unmortgageable so that it will then qualify for a mortgage. If you do this, be sure to consider the time and expense involved carefully. It may take months or years and cost thousands of pounds.
Secondly, you could sell your property to a cash buyer. If you sell to a cash buyer they won’t need a mortgage anyway. The cash buyer will be able to offer you a fixed cash price and guaranteed completion. Your house will be sold and the cash will be in the bank within a few short weeks even though it isn’t mortgageable.