2 Mar 2018
Author: Stephen Breen
You’ve got a perfect credit history and you’ve met the lender’s earnings multiple for the property you want: so why can’t you get a mortgage?
Unfortunately lenders look at far more than these basic criteria and other less obvious issues can substantially affect your ability to secure a loan. Here, we look at a number of situations where getting a mortgage from a high street lender will be more difficult or simply impossible.
Securing a mortgage on a flat above a late night shop or restaurant can be tricky, with just a few lenders offering this type of finance. Those owning or looking to buy flats located near to pubs, clubs or other noisy venues may suffer similar drawbacks when mortgaging or remortgaging. Lenders know that if they have to repossess the property and sell it, it will be more difficult to market this type of home.
Those looking at flats above a restaurant, takeaway or other venue that serves or prepares food can expect similar refusals from the big name banks. The smells that are produced by these outlets can be off-putting for would-be buyers, making it more difficult to sell the property on.
Finding finance on these types of property is not impossible, however – there are specialist lenders prepared to consider more niche circumstances, but this is reflected in higher interest rates. For example, Vida Homeloans offers a two-year fixed rate deal at 3.04% or a five-year fixed rate deal at 3.54% but a larger deposit (e.g. 40%) is typically required. This may be contrasted to the current mortgage interest rates on standard properties which are substantially less at 2.37% (2 year) and 2.91% (5 year).
If you are looking at purchasing a property above a shop, restaurant or other commercial venue, it is worth checking the Local Council’s website to see if there are restrictions on opening hours, consumption of food and alcohol, or the playing of music. Our property team can assist – get in touch for advice.
A lesser-known problem arises if you try to mortgage a property in the same building as another property which your target lender is financing. This is particularly true where the lender will end up with more than 25% of the building in their portfolio. Borrowers also experience problems where they have the same postcode as a neighbour who is using that lender: again because the lender will try to spread its risk. With several properties in close proximity, all will be affected if for anything should occur that would make them harder to sell; and if all of them go up for rent at the same time, this could adversely affect the rental value.
Renting a spare room on Airbnb seems like a fantastic way to make money these days, particularly with the tax breaks available under the Government’s Rent a Room scheme. However, listing your property on Airbnb or a similar site could block you from getting a mortgage, leading to your application being declined. Not every lender takes this stance, but some do check the Airbandb website for this type of activity. Others will accept applications where a single room is rented out – but if the whole home is let, this will typically breach the mortgage conditions.
Both Market Harborough building society and Metro Bank are more flexible as to Airbandb lets with the former able to cater for borrowers, even if the whole property is let.
Some lenders take issue with studio flats of around 30 square metres or less, simply because of their saleability in the event of repossession. For example, lenders Accord and Coventry Building Society will not offer finance on these properties at all.
In areas were small properties are more common – London for example – these are less of an issue. Property prices in the Capital are high and tiny flats still sell, so lenders don’t worry about recovering the finance should they need to repossess.
Short term leases
If you’re buying a flat and the number of years left on the lease is getting close to 80, you’ll need specialist advice. Don’t be taken in by estate agents’ promises of easy extensions – you’ll need to live in the flat for 2 years before you have a right to extend, and you’ll have to pay a premium for the extension. On a flat with 79 years left to run, a lease extension of 90 years would typically cost around £8,500 plus £2,500 in legal fees. On average, extending the lease would add £16,000 to the flat’s value (Source: Money Saving Expert).
You’ll find lenders less willing to look at properties with less than 75 years to run and mortgage rates will rise as the number of years reduces. With a lease of 60 years or less, no lender will offer you finance.
Speak to our property team for advice on purchasing a property with a lease approaching 80 years, or renewing your existing lease.
Some lenders steer clear of high rise flats, particularly where the property is on a higher floor. Aside from being more difficult to sell, these properties can suffer a range of problems, including having a non-standard construction.
Aside from high rise flats, other types of properties may have a non-standard construction, making it difficult to secure finance. A standard construction a house built from brick and/or block walls with a standard pitched and tiled roofing and concrete foundations. A non standard construction is anything that deviates from this standard property type.
Again, lenders will consider the likelihood of being able to recoup their money quickly if the borrower defaults, and those houses with timber and steel frames or other unusual construction materials or methods can be off putting because of their lack of appeal to buyers.