Traditional high street and specialised buy-to-let lenders look for properties that is habitable and stable. A property in poor condition, without a kitchen or bathroom or below a lenders minimum value are common reasons for a property to be considered unmortgageable. Such properties are typically bought at auction or off market for cash.
If cash is not available to cover the full purchase price, a refurbishment bridging loan will be required to purchase the property and carry out the corrective work to either sell on at a profit or rent out with a standard mortgage .
What makes a property unmortgageable?
1. Structural issues – a property with cracked walls, severe damp, uneven floors, damaged roof, uneven or damaged chimneys, rotting timber are all indicators of structural problems they may require extensive renovation and cost to set right.
2. Uninhabitable – a property that is derelict and not in a condition to be lived in.
3. No kitchen or bathroom – most mortgage lenders will consider a property to be uninhabitable without basic services.
4. Lease issues – a mortgage will be difficult to obtain for leases less than 70 years remaining or if there are defects in the lease that compromises the maintenance and integrity of the property for example, where there is no provision to repair or maintain parts of the property.
5. Non-standard construction – a property not built from brick or stone walls and roof made from slate or tile. Properties not built from these materials are considered more difficult to sell, costly to maintain, potentially unsafe and difficult to insure. Examples of non-standard properties and material used to build a property include but not limited to: prefabricated concrete; thatched homes; listed buildings; steel framed; timber frame; glass walls; flat roofs; cob concrete; timber and certain types of external cladding.
6. Low value properties – it is not economical for most lenders will not offer a mortgage for properties valued less than £75,000.
7. High rise properties – criteria can vary depending on the lender appetite, quality of the property, location, demand, and lift access beyond a certain number of floors. Some lenders will cap the number of floors to five and others will have higher or no restrictions at all. Getting a mortgage for a high-rise flat is typically easier in London as they are considered more saleable the outside. It is always worth checking with lenders first before committing to purchase.
8. Environmental problems – many mainstream lenders will not consider properties with the following issues:
- A history of flooding and subsidence
- Invasive weeds such as Japanese Knotweed, Himalayan Balsam and Giant Hogweed can cause great damage to property that will impact on the saleability and market value if untreated.
- Close to mines, landfill, and sites with contamination risk
9. Ex council or local authority housing – various issues arise for this type of property including:
- Generally, a highly concentrated in rented accommodation and lower owner-occupied.
- Less desirable and more likely fall in value
- A construction may be prefabricated concrete
- Recent issues with external cladding
- Balcony access to your property
10. More than one kitchen – The risk to lenders is the possibility the property being sub-let, thus breaching to terms of many buy to let mortgages. Where there are two or more kitchen, you can remove the kitchen prior applying for a mortgage or agree a full or part retention with the lender until the removal is done.
11. Flats above shops – Lenders are particularly keen to avoid flats above restaurants, takeaways, pubs, and licensed premises because of the likelihood of noise, smells, violence, and other anti-social behaviours that will reduce demand and negatively impact future resale values.
For an experienced developer or landlord, buying a property with problems can represent a great opportunity to add value and achieve higher returns than a vanilla buy-to-let investment. A bridging loan has the following benefits:
- Bridging finance can be arranged quickly.
- Interest can be deducted or added to the loan which means interest there is no cashflow requirement to service the monthly interest.
- A refurbishment bridging loan can provide the funding needed to purchase the property and fund 100% of the building or remedial work.
Quest commercial finance understand that each client and their circumstances are different. We take the time to understand you needs and approach lenders the can provide tailored solutions at the lowest possible cost to maximise your profits.