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What Makes a Property Mortgageable?

a house with a question mark on

When you apply for a mortgage, much of the evaluation of your application will be predictable. When a lender determines whether you can afford the loan, they’ll consider your income and expenditures, as well as your credit history. You will likely be familiar with or at least anticipate these as essential components of obtaining your formal mortgage offer.

Nonetheless, what many prospective borrowers fail to consider is the property itself. As it will be used as collateral for the loan, the lender must be satisfied that it meets their criteria for being acceptable. This can vary from lender to lender. We’ve outlined some of the most common property types and circumstances that could result in your application being denied or limit your mortgage provider options.

How are properties in poor condition affected?

It is not surprising that many would-be buyers seek out properties in need of minor renovations. Poor condition properties can likely be acquired at a lower price, given that property values appear to be trending only upwards. The property can be brought up to a more desirable standard over time with some hard work and careful planning.

However, what you may consider a viable project, a lender may view differently. They must lend on the property in its current state, regardless of any future plans. So how can you determine if a property’s condition makes it mortgageable? This is a difficult question to answer definitively, as it will depend on various aspects of your application as a whole.

One of these is the amount of available equity or deposit. Expect a lender to be more accommodating on a property with a loan-to-value (LTV) ratio of 50% versus 95%. Again, keep in mind that this is the purchase price, regardless of the projected future value.

To have any chance of obtaining a standard mortgage from the outset, a lender will expect the property to have a functional kitchen and bathroom. The lender’s surveyor will ultimately evaluate the property and determine whether it meets the lender’s minimum-security requirements. This may be confirmed during their initial inspection, but they may request additional specialist reports. This may include an electoral report or a structural engineer’s report, in order to make a final determination.

The surveyor’s evaluation may result in a retention being imposed until certain tasks are finished. This means the lender will withhold a portion of the mortgage amount at closing until these are completed.

Construction type

Not all structures are constructed with the same materials. Over the many years that we have been creating property in the UK, many various styles and materials have been employed, and will continue to be employed as technology advances.

Some formerly employed methods, such as precast reinforced concrete construction, have been deemed inferior to brick due to their inferior durability. As a result, many forms of development will either be deemed non-mortgageable or, for those that are, bigger deposits or lower LTV ratios may be required.

Prior to incurring the expense of hiring a surveyor to inspect a non-standard structure, it is usually advisable to determine whether the lender has any construction-related requirements.

Property type

There are some property types, such as mobile homes, that are unacceptable when applying for a mortgage. High-rise condominiums are also a property type that lenders may or may not accept. This can be affected by balcony access and the number of floors a building contains.

Large-acreage properties can be problematic for some lenders. Especially if they are used for commercial purposes and have agricultural restrictions imposed on them.  

Leasehold or freehold?

The type of property ownership, known as tenure, is classified as either leasehold or freehold. Generally, flats or apartments will be leasehold properties while houses and bungalows will be freehold properties. Keep in mind that this is not always the case.

Due to the more complex legal arrangements that come with freehold ownership, a mortgage lender may not be willing to lend on a freehold apartment. This is not to be confused with a share of freehold, which is a different arrangement and one that frequently causes confusion with freehold flats.

If uncertain, it is strongly advised that you determine this before researching mortgage options, as it will likely make a difference. A lease is usually suitable (after being reviewed by your solicitor). Most lenders will require a minimum term to be established at the time of the application, as it may affect their decision.

Short-term leases can make obtaining a mortgage difficult. They can be costly to extend, so it is important to investigate this before making an offer on a home.

Japanese knotweed

Japanese knotweed is a highly invasive weed that has been demonstrated to cause property damage. While the number of properties affected by the weed is still relatively low, its prevalence is increasing, especially in certain regions. As more is learned about the destructive nature of this weed, the industry becomes much more acquainted with its management.

Lenders are becoming much more flexible in their approach. So, if you are aware of this in relation to your property, you should gather as much information as possible and obtain any available reports.

Buying at auction

This is more of a cautionary note than an actual feature of the property. Purchasing at auction or through a modern auction that is gaining in popularity can provide significant price advantages.

Keep in mind that if your offer is accepted, you will likely be legally bound to the purchase on the day of acceptance and will be required to pay a deposit. Typically, this is at least 10%. If you require a mortgage to purchase the property, you do not want to discover after the fact that it is not mortgageable.

Therefore, conduct as much research as possible beforehand, even if it means paying for a surveyor.

How can you protect yourself?

Is there anything you can do to avoid committing to the purchase of a property for which you may be unable to obtain a conventional mortgage?

Our best recommendation would be to conduct as much research as possible before incurring any costs. At the very least, keep these to a minimum if you have any doubts about obtaining a mortgage due to the condition of the property.

Talk to those involved in the sale and, if possible, establish direct contact with the seller, who should have information about the construction type. Your mortgage application will require a property evaluation. However, the lender will decide based on its own opinion of the property, which may or may not involve a physical inspection by its surveyor.

If you have any doubts, we strongly advise you to hire your own surveyor to provide you with a report.

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