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Which types of property is it hard to get a mortgage for?

Most homebuyers require a mortgage to help them finance their property purchase. Each mortgage lender has their own criteria for lending money, and their willingness to approve your mortgage application will largely depend on your financial situation, your age and employment status. But even if you’ve been accepted, it doesn’t mean you can buy any old property.

Once you’ve found a place to buy, your lender will carry out checks to ensure they are happy with the property – and this is where it can get tricky. Did you know that there are certain types of property that are notoriously difficult to get a mortgage for?

Your lender will usually appoint a representative to conduct a site visit and produce a mortgage valuation for the property you wish to buy. Their report will flag up any properties that are not acceptable for lending, in which case they won’t authorise the loan. It is also possible that your mortgage offer may be conditional upon getting a satisfactory full Building Survey (Level 3) or structural engineer’s report.

At Cosey Homes, we’ve been inspecting and surveying properties for nearly 20 years. We’ve identified the main property types that mortgage companies are not at all keen to lend on. If the house or flat you have your eye on is on the list below, check with your mortgage company at the earliest opportunity to save yourself the prospect of much heartache and abortive fees down the line.

Also consider that if you do manage to secure a mortgage after some difficulties, the same will apply to future buyers when you come to sell. This may make the property harder to sell and depress the price. Indeed, if the price you are paying now seems suspiciously cheap, this may well be the reason.

Non-standard construction

Standard construction for residential property essentially means homes built from bricks and mortar or stone, with a slate or tiled roof. Non-standard houses are typically built from other materials that don’t conform to the ‘standard’ definition. There is a greater commercial risk associated with these types of property when it comes to repairing, refurbishing or rebuilding costs. Unconventional homes may also have a shorter lifespan, be susceptible to serious building problems or pose a greater fire risk. They include:

Concrete – Properties made of concrete, typically Precast Reinforced Concrete (PRC) were popular in the 1960s and 1970s as high-rise flats including the famous Brutalist Barbican complex in the City of London.

Steel Frame – Steel frame construction is affordable and lightweight and was used by many local authorities for post-war house building, but was later found to be structurally vulnerable.

Timber Frame – Timber framed buildings, both modern and historic, are unpopular with lenders on account of their greater fire risk. The same applies to properties with thatched roofs.

Residential vs commercial

Live & work units – Properties that are designed to provide both a place to live and a place to run a business from are unpopular with mortgage lenders precisely because of the blurring of boundaries between residential and commercial use. A residential mortgage would require the space to be exclusively used as a home, which would fall foul of planning regulations for live/work units.

Upper parts – Flats or maisonettes above commercial premises that are considered ‘high risk’ including shops, pubs and restaurants are seen as a commercial risk. These properties are more likely to be affected by environmental issues (noise, smells, rubbish) and security issues that are outside the owner’s control but may have an adverse effect on the property value.

Agricultural property – Properties such a farmhouses or cottages that have an agricultural tie have planning controls in place that restrict the occupation of the house to people who work in agriculture or forestry. This narrows the market and can make these types of property difficult to sell. Indeed, many are sold at a discount.

Risk of asset depreciation

Ex-council housing – Often keenly priced on the open market, ex-local authority housing is unattractive to mortgage companies since these properties are considered to be more likely to lose value over time. This is compounded by the fact that they are often surrounded by a high proportion of rented council houses.

High rise flats – Properties located on the 4th floor or higher may be more difficult to mortgage since they are thought to be less likely to retain their value in a downturn. Additionally, the upkeep of communal areas is beyond the homeowner’s control and could also negatively affect the property value.

Studio flats – The combination of the compact size and niche appeal of a studio flat often makes these properties not worth the mortgage risk. Most lenders have a lower size limit of 30 square metres and will reject any property that falls below that size.

Short leases – Flats and maisonettes with 80 years or less left on the Lease rapidly depreciate in value because it may be difficult to renew the lease, and the cost of a lease extension is so high. This makes short lease properties very difficult to sell.

Leasehold vs freehold

Freehold flats – Flats are traditionally sold on a leasehold basis. If that is not the case, it means there is no legal agreement between the owner of the building and the owner of the individual flats. This can spell huge problems when it comes to agreeing repairs and maintenance for the building.

Flying freeholds – Mortgage companies are also wary about properties where the building extends across part of a neighbouring freehold property, such as with an overhanging garage, bedroom or balcony. Flying freeholds are a problem because the owner usually has no adequate right of support from the structure below, or right of access for making repairs.

When it comes to buying a residential property, most homebuyers are understandably guided by the key criteria of price, size and location, rather than the type of building. If you are thinking of buying a property with a mortgage, and your dream home falls into one of the categories mentioned above, it is essential to do your homework early in the home buying journey to avoid disappointment and unnecessary expense later on.

For friendly, professional advice regarding your next property purchase, contact the Cosey Homes team today.