How to Buy an Unmortgageable Property
Buying an unmortgageable property can be a fantastic investment – they are often cheap, and many homebuyers dream of purchasing a derelict property to renovate as they wish. However, doing so is inherently risky as you may not be able to sell the property for a profit even if you’ve refurbished it.
Our solicitors can help you understand what constitutes an unmortgageable property and help you understand the risks involved.
What defines an Unmortgageable Property?
A property could be considered unmortgageable by a lender if it:
- Is unfit for habitation
- Has structural defects – this includes properties with severe damp and rot, as well as damaging plants like Japanese Knotweed.
- Was built using non-conventional materials, such as unsafe cladding
- Lacks basic amenities (such as a kitchen or a bathroom)
- Has too many amenities – lenders may be concerned that you intend to let the property if there is more than one kitchen or bathroom
- Has onerous restrictive covenants over it
- Is of very low value – lenders are rarely willing to lend on properties worth less than £50,000 as they generally consider them not worth the administrative work it would take
- Is in an area prone to environmental hazards, such as flooding
- Is in an area where developments are planned which could make the property less desirable to future buyers, such as a new railway or an airport expansion
- Is a “flying” or “creeping” freehold (meaning part of the property goes under or other a neighbour’s property, such as a basement that extends to underneath someone else’s property)
- Is a leasehold property with 80 years or less left on the lease – find out why in our blog on Short Lease Mortgages and Lender Ground Rent Criteria.
Some lenders may still be willing to lend on some properties that fall under these categories; these are just common reasons why a property may be difficult to obtain a mortgage for. Most importantly, it will depend on a lender’s requirements.
Why do these Factors Make a Property Unmortgageable?
If your home is repossessed, lenders are relying on the profits from the sale to recover what they are owed. These factors typically reduce the value and desirability of a property, meaning that even if they do manage to sell it, they may not make back enough to cover their loss.
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Where Can I Find an Unmortgageable Property for Sale?
Unmortgageable properties, especially those which are derelict, are commonly sold at auctions rather than through estate agents. Buying a property at auction can be a fantastic way to purchase a good property at a low price, but there are risk factors you need to be aware of.
What Can I do if I Still Want to Purchase an Unmortgageable Property?
Just because a property is considered unmortgageable doesn’t mean it purchasing is a dream beyond reach.
Tips for buying unmortgageable properties:
- Survey: It is recommended that you get a detailed survey regarding what issues the property has which makes it unmortgageable. This can help you plan for the future, whether you wish to refurbish and sell and what this may involve.
- Legal Advice: Consulting with a solicitor is key to understanding what legal implications may be involved with your purchase
- Financing: it is key to have a plan in place regarding obtaining the necessary funds for your purchase as mortgage financing is not an option
There are still a few options for financing, open to those who wish to purchase an unmortgageable property:
Purchase as a Cash Buyer
If you can purchase a property without the need for a mortgage, you will likely be able to do so. Some sellers will only sell an unmortgageable property to a buyer purchasing without a mortgage or other loan, as applying for a mortgage significantly slows down the sale and could waste the seller’s time if the mortgage is not granted.
You should ensure that you enlist the help of a chartered surveyor to help you decide whether to purchase a property as a cash buyer. A chartered surveyor can point out all of the properties’ defects and suggest how much it will cost to fix them, plus they can ensure there aren’t any additional problems which the seller is hoping will go unnoticed.
Obtain a Bridging Loan and Refurbish the Property
Lenders may be willing to lend on a refurbished property, but only once the refurbishments have been completed. Instead, you could use a bridging loan to purchase the property, complete the property’s refurbishments and then arrange a normal mortgage for the property once it’s in good condition. The mortgage can then be used to repay the bridging loan.
Bridging loans are designed to be flexible, short-term (usually between 2 and 12 months) and easier to apply for than a mortgage, sometimes not even requiring a deposit.
To get a bridging loan, you will need to go to a specialist bridging loan lender. Speak to the mortgages team at Starck Uberoi Wealth if you think bridging finance is right for you – some lenders will only offer their loans to mortgage brokers, plus our independent mortgage brokers will be able to help you find the best loan for you.
Our bridging loan solicitors have created lots of guidance around this topic. You may want to read.
- How does a bridging loan work?
- How much does a bridging loan cost. Try our bridging loan calculator.
Can I buy an Unmortgageable Property to Refurbish and Sell Quickly?
The idea of purchasing a cheap property to refurbish and sell at a higher price is appealing to many. However, while this can be a good idea, bear in mind that many lenders will only grant a mortgage to a buyer purchasing a recently-refurbished house if the seller has owned the property for at least six months first. It is also important to note that refurbishments can take time and money beyond initial estimates, having to gain planning permissions may also be a lengthy process.
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Will Buying an Unmortgageable Property Always be Cheaper than Buying a Mortgageable Property?
Not necessarily – even if the purchase price of the property is low, if the property is in disrepair you will need to make the necessary renovations. Additionally, you will likely need to hire a surveyor to give you a breakdown of the problems with the property, or risk having to make even more repairs in the future that you had not factored into the original cost. A qualified surveyor can charge anywhere from £50-£1000 for their services.
You will normally need to have the funds available from the outset to purchase a property as a cash-buyer. If you intend to use a bridging loan, make sure you plan how you’re going to repay it before applying.
How Long Would it Take to Buy an Unmortgageable Property?
Because you do not need to apply for a mortgage, buying an unmortgageable property is much faster than buying a property using a mortgage. Bridging loans can take as little as a week to arrange, and the rest of the process will depend on your conveyancing solicitor.
Some conveyancers can take over 12 weeks to complete a transaction, which can be frustrating for buyers and sellers alike. Alternatively, at Starck Uberoi we offer a fast conveyancing service which you can use to ensure you do not miss the deadline for bridging finance or lose out on the property to a faster buyer.
Is Buying an Unmortgageable Property a Good Idea?
An unmortgageable property will almost always be significantly cheaper in value than other properties, but that does not mean they are a cheap alternative to buying a property with a mortgage. Whether or not buying an unmortgageable property is a good idea mostly depends on why the property was deemed unmortgageable to begin with:
- If the property is uninhabitable or has structural issues: It may be a worthwhile investment, if by refurbishing it you are likely to get good returns. You will need to weigh up the cost of the purchase and repairs against the likely return you could get for selling it.
- If the property is in an undesirable location: Although there isn’t much you can do about a property’s location, that doesn’t mean buying a property there is always too risky. It will come down to the reason the area is undesirable – for example, some buyers may be happy to buy a property close to an airport if it will be cheaper.
- If the property is a leasehold with a short lease: Although you could extend the lease, you will need to consider the cost of a lease extension compared to the potential return you would get from selling the property in future. The shorter the length of the lease, the more expensive it will be to extend it. Talk to our team about Lease Extensions for more information.
Tips for Selling an Unmortgageable Property
- Target the Right Buyers: Focus on cash buyers, property investors, and developers. These groups are more likely to purchase properties that can’t be mortgaged due to their potential for renovation or development.
- Choose the Right Sales Channel: Consider selling through a property auction for a quick and binding sale. Alternatively, work with an estate agent experienced in selling challenging properties to reach more potential buyers.
- Price Competitively: Set a realistic price that reflects the property’s condition and potential. An attractive price can generate more interest and lead to a faster sale.
- Prepare the Property: Clean up and make minor repairs to improve the property’s appeal. Even small improvements can make a big difference in attracting buyers.
- Be Transparent: Provide all necessary documentation and be upfront about any issues. Transparency builds trust and can prevent future disputes.
How Starck Uberoi Solicitors Can Help
Our conveyancing specialists offer a fast and effective conveyancing service regardless of your transaction, and can also help with bridging loans. We generally work on a fixed-fee basis and can provide a no-commitment free online quote through our website, with a full breakdown of all costs payable. To ensure an efficient service, we use email and telephone to reach clients and we developed the Starck Uberoi app, so you can message your solicitor and track your matter’s progress anytime, anywhere.
For more information, please see our conveyancing pages on our website. To book an appointment, please call 020 3820 7473 or email solicitor@starckuberoi.co.uk. Our offices are located in Brentford, Ealing, London Belgravia and Canterbury, all within easy access by public transport. Our partner, Raminder Singh Uberoi, can also provide a Notary Public service from any of our London offices.
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