If a house or flat is classed as ‘unmortgageable’, it means a mortgage provider will not lend money for the purchase of the property. This can be a real problem for sellers, as it significantly reduces the number of potential buyers.
Sometimes, the owner of the property will disclose this issue when they put it on the market. Other times, it only comes to light during the survey or valuation stage of the house-buying process.
Often, an unmortgageable property has physical and legal risks, meaning a lender won’t want to secure the loan. In some cases, though, they may be willing to approve a loan, provided certain conditions are met. They may require the buyer to put down a higher deposit or pay a higher interest rate, for example.
There are many reasons why a property may be classed as unmortgageable. In this article, we’ll explore 15 of the most common ones.
1. Lease issues
One of the most common lease issues is that the lease is under 70 years, which is considered to be too short. Lenders will often class the property as unmortgageable because of how much the lease extension costs and restrictions around how long a person owns a property before they can extend it. However, some mortgage lenders may approve the loan on the condition that the lease is extended by the exchange and completion stage.
As well as having a short lease, other issues include a lack of clarity regarding access or right of way, unclear information about freehold ownership, a lack of repair and maintenance provisions and unresolved practical or legal issues.
2. Structural problems
If a property has unusually large cracks running along the internal and external walls, there is likely to be structural issues. These are usually caused by subsidence (where the ground beneath a building sinks), but large tree roots and damaged water pipes can also be culprits.
These cracks are difficult to hide, so if you are selling a house or flat with structural problems, it is best to either be upfront about the work that needs doing or fix the damage before you sell. Just make sure you use qualified structural engineers who are accredited with the Royal Institute of Chartered Surveyors (RICS).
3. Damp and dry or wet rot
The two main types of damp are rising damp and penetrating damp. Rising damp is where groundwater seeps up through the foundations of the property, while penetrating damp is where water leaks through the brickwork or a gutter or drainpipe has cracked.
When left unattended, damp can cause permanent damage, but for less severe damp, simple solutions include fitting vents and extractor fans and leaving windows open so condensation doesn’t build up. For more serious issues, it’s best to get help from a damp and timber surveyor who can install a damp-proof course.
Dry or wet rot is a type of fungus that can cause similar problems to a building if it is left too long. Again, reducing condensation or fixing a leak can resolve the issue, but in more serious cases, the timbers will need to be replaced.
4. It’s uninhabitable
Derelict properties without a kitchen or bathroom will be classed as unmortgageable. This is because a property that needs these essentials will usually have to be completely refurbished.
Roof repairs, damaged floorboards and non-existent staircases can also make a property uninhabitable, meaning lenders will be reluctant to approve a mortgage on it.
If you are selling a dilapidated property, you will have more chance of selling it by making the necessary renovations. While this can be expensive and time-consuming, you will make the property more mortgageable by doing a complete renovation, especially if you can make it as energy-efficient as possible.
5. A problematic location
A property that’s close to commercial or industrial sites or located in a council house area may be classed as unmortgageable because the lender believes it will be more difficult to sell on.
If the property is above a shop or restaurant, it may not be unmortgageable, but the buyer might not be able to get a regular residential mortgage as there will be a higher risk of fire and smoke damage. If they are able to get a residential mortgage, they will likely have to pay a bigger deposit.
Lenders may also class a property as unmortgageable if it is located in an area that’s prone to flooding or if it has been built on an old coal mine or landfill site.
Disruptions in the neighbourhood could also put lenders off. Some examples of these are railway lines, motorways, airport landing strips and factories or industrial units.
6. Building regulations
If building work has been carried out without the necessary approval or it doesn’t meet strict building regulations, a lender could deem the property unmortgageable.
For example, ‘single-skin’ properties have just one course of external bricks and do not meet modern building regulations. This means some mortgage surveyors will view them as unstable, prone to moisture penetration, inadequately soundproofed and energy inefficient.
7. Cladding issues
Following the Grenfell Tower fire in 2017, external cladding on some apartment blocks is now deemed unsafe and needs to be replaced.
This means that mortgage providers will not lend money on buildings above 18 metres that still use this type of cladding.
To obtain a mortgage on a property with cladding, lenders now require an EWS1 (External Wall System Fire Review certificate).
8. A pest infestation
Infestations of wood-boring insects like woodworm and beetles are more likely to occur in barn conversions, but they can happen in any property with a timber frame.
While the problem can be easily rectified if it is dealt with by pest control quickly, if it is left too long, the timbers will need to be replaced.
9. Asbestos
The use of asbestos in construction may have been banned in 1999, but it is still present in some homes, especially ones that were built before the mid-1980s.
In some cases, lenders will require the asbestos to be removed before they will approve a mortgage on the property.
Removal can be expensive, but with so many specialist companies out there, you may be able to find a good deal.
10. Japanese Knotweed
Japanese knotweed is a pest plant that can cause severe damage to buildings. An incredibly resilient plant, its underground roots can grow as deep as three metres and spread up to seven metres horizontally.
That said, it can be removed with a specialist chemical spray, although it is best to hire professionals to remove it using a combination of digging and chemical control, as it can grow too deep for normal gardening practices and even one missed rhizome can enable the plant to establish itself again.
For a provider to lend the money for a mortgage, they may need an insurance-backed guarantee and a certificate of competence for spraying weeds.
11. A crime has been committed
A serious crime being committed in a property can significantly reduce the property’s market value, which can make it more difficult to get a mortgage.
This does depend on the extent of the crime, though. For example, a house that was formerly lived in by squatters might not be an issue because the property is going back to normal use.
12. Ground rent
Some development companies state in their contracts that ground rent can be increased year-on-year, with some ground rents increasing by hundreds of pounds.
Mortgage providers are less likely to approve finance if they have no clear idea of how much the ground rent is going to be.
13. Boundary disputes
A property may be deemed unmortgageable if the Land Registry title plan identifies any potential boundary issues. Some examples of this could be a shared pathway between two properties, conflict relating to dividing walls or flying freeholds (where part of one property overlaps another, for example, a balcony extends over a neighbouring property).
If a mortgage company is concerned about boundary issues, a good solicitor will be able to negotiate with the other party to resolve the issue.
14. Electrical or gas faults
A lender may refuse to mortgage a property if there are dangerous electrical or gas faults.
These pose safety risks, so it is essential that they are dealt with as soon as possible. When hiring a plumber to deal with a gas issue, it is important to ensure they are Gas-Safe Registered. Similarly, if you need to hire an electrician, it is wise to use one that is NICEIC-registered.
15. Registry problems
A lender will need to verify ownership of the property before they can approve a mortgage application. In some cases, there won’t be any title deeds — for example, a person has inherited a property and their name isn’t on the Title Register yet — however, this can be rectified by applying to HM Land Registry.
Another registry problem could be that the Land Registry title is not split correctly. This can happen with houses that are split into flats irregularly. For example, they appear to be two separate units, but both properties exist on one title. In this instance, you should obtain a certificate of lawful development from the local council.
Summary
If a house or flat is classed as ‘unmortgageable’, it means a mortgage provider will not lend money for the purchase of the property. Often, an unmortgageable property has physical and legal risks, meaning a lender won’t want to secure the loan. In some cases, though, they may be willing to approve a loan, provided certain conditions are met.
