How to sell an unmortgageable property
The vast majority of UK homebuyers use a mortgage to purchase their home, making selling unmortgageable property difficult – but not impossible. Our conveyancing solicitors explain what you can do if your property is unmortgageable.
What makes a property unmortgageable?
There are many different reasons why a lender may not be willing to lend on a property, but almost all of them are because the lender either does not want to risk losing money if the property is repossessed or because the property isn’t likely to earn much in interest. Here’s a couple of reasons why your property could be unmortgageable and what you can do to appeal to more buyers.
Low-value homes
You might think that selling a property for below £50,000 would be easy. Unfortunately, properties worth so little are often difficult to get a mortgage on because so many lenders don’t see it as worth the effort to lend on them – they’re not likely to make much money in interest, so why bother? Should this be the case, it may be worth the investment to try and raise the property’s value by just enough to mortgage it, by making improvements to the property. You might also be able to find a cash buyer more easily if the value is low enough.
Unapproved alterations to the property
For many extensions or loft conversions, you will need some level of planning permission. If you weren’t granted planning permission for an alteration you’ve made, a buyer might struggle to get a mortgage because the lender has no way of knowing that the alterations have been performed to an acceptable standard. If you’ve altered your property without proper planning permission, don’t panic. You can apply for retrospective planning permission and many local authorities will grant such applications. However, be aware that your application may be rejected if you previously applied for planning permission for the alteration and were rejected.
Uninhabitable properties
Many buyers dream of having an uninhabitable home to restore and redecorate as they wish – plus, buying a derelict property can be a great way to grab a space in a popular area for a fraction of the price. Unfortunately, their low value and difficulty to re-sell puts many lenders off. Although it’ll be expensive, it may well be worth restoring the property into a habitable state yourself before you sell it. It only needs to be in a functioning state – if you leave it completely undecorated, it’ll still appeal to buyers who want to renovate their homes themselves.
Properties with functional issues
Even if your property isn’t strictly uninhabitable, there may be other reasons why a mortgage lender won’t offer a mortgage on it. This could be the case if:
- The property doesn’t have a kitchen or a bathroom
- The property has more than one kitchen or bathroom – this might not sound like a bad thing, but if a property has too many facilities lenders may worry that you intend to sub-let your property.
- The property has Japanese Knotweed growing nearby or on the property – Japanese knotweed can grow through concrete foundations and cause enormous damage. Find out more in our blog post.
The simplest solution to many of these issues may be just to fix the problem yourself; for example, you could install or remove a kitchen or bathroom if that’s what’s causing the issue.
Properties built with non-conventional materials or to non-conventional standards
Properties that don’t abide by typical building standards are unlikely to be mortgageable due to concerns about their safety. Unfortunately, this could become an increasing problem due to the increasing popularity of eco-friendly homes, which tend to be made out of non-conventional materials. Fortunately, as the government puts more pressure on lenders to encourage the buying of eco-friendly homes, this could be less of a problem as more lenders begin offering “green” mortgages. However, if your home is not considered “green,” you may rely on finding a buyer using a specialist lender.
Properties in undesirable locations
By “undesirable location,” we don’t mean your property is in a nasty area – we mean properties close to planned development works, in flood-prone areas or close to commercial properties. Regardless of how much the property is worth now, the lender can’t be sure what their value will be in five years’ time. For example, imagine that you own a flat above a bookshop. That might not be a problem now, but what if the bookshop is later replaced by a pub or a betting shop? The increased noise could have a huge impact on your property’s value, which could mean your lender won’t make their money back if you default on your mortgage. Fortunately, there are some specialist mortgage lenders who will offer mortgages in such locations. If you’re struggling to find a buyer, you could try selling through an estate agent.
Leasehold Properties with short leases
Properties with fewer than 65 years remaining on the lease are often considered unmortgageable. If your property already has fewer than 65 years remaining on its lease, your best option may be to source a lease extension. Extending such a short lease will usually come with a high premium, but you may be able to negotiate a lower cost by asking your freeholder for an informal lease extension. You don’t need to wait until the lease extension is complete to sell the property, if you’ve found a buyer. You can begin the lease extension, then assign the benefit of a section 42 notice to the seller, so that they can complete the lease extension before you complete on the sale. By doing this, your buyer will be able to satisfy the mortgage lender’s requirements and buy the property – plus, you can pass the costs of serving the section 42 notice onto them. Find out more in our blog post on Buying a flat with a short lease and assigning the benefit of a section 42 notice. If all else fails, there are some mortgage lenders who could still lend on a property with a short lease remaining. You could also try and find a cash buyer.
Leasehold properties with onerous ground rent terms
In 2017, many leaseholders fell victim to the ground rent scandal; they had signed leases containing terms which allowed their ground rent to double frequently and concerningly quickly. Lenders were not willing to lend on properties with such outrageous terms, meaning hundreds of leaseholders were trapped in homes they couldn’t afford to live in. Despite the action that was taken following this scandal, freeholders are still allowed to offer leases with unfair ground rent terms. If you are stuck in such a property, you may need to request a deed of variation of lease. A deed of variation of lease could allow you to reduce the ground rent and prevent it from doubling, making the property more sellable. If your landlord won’t grant you the deed or variation of lease (and if you’ve lived in the flat for at least two years), you can serve a section 42 notice onto them for a statutory lease extension; not only does this extend your lease and increase your property’s value, but you are also legally entitled to reduce your ground rent to a “peppercorn” rate. Unfortunately, this won’t be cheap to do, as you’ll need to pay a premium for a lease extension. Find out more about lender’s ground rent requirements in our blog post on Short Lease Mortgages and Lender Ground Rent Criteria.
How can I sell my unmortgageable property?
If the above solutions aren’t possible or your property is unmortgeable for a different reason, don’t give up hope just yet. Selling unmortgageable property may not be easy, but it’s possible. Buyers hoping to purchase an unmortgageable property often take out bridging loans in order to purchase unmortgageable property, fix the issues that make it unmortgageable (if possible), then arrange a proper mortgage for the property to repay the bridging loan. Bridging loan lenders tend to be more willing to take on unmortgageable property as security and come with an exit strategy in place, so the borrower is much less likely to default on the loan. Find out more in our blog post on bridging loan conveyancing. Although it’ll take longer, you can always wait to find a cash buyer who will buy your property for a lower price without a mortgage. For properties that require improvements to make them mortgageable, buyers can also take out bridging loans to finance the improvements, then take out a normal mortgage on the refurbished property to pay back the bridging loan. If you’re struggling to find a buyer, you could sell your property through an estate agent who specialises in selling unmortgageable property. There will be a commission fee for their services, but they may be able to find a suitable buyer quicker. You could also try to sell your property at auction. Many auctions require the buyer to have the deposit for a property available on the day of the auction, so most auction buyers will have their finances in order to buy the property by the auction date. This means that any buyers bidding on your property will usually be able to purchase the property in its current state regardless of its mortgageability. Read our blog post on Auction Property Conveyancing to find out more about how property auctions work.
How Starck Uberoi can help
With Starck Uberoi, selling unmortgageable property doesn’t have to be a headache. Our property solicitors are incredibly knowledgeable in all areas of property law and can help you understand why your property could be unmortgageable and what you can do to fix it. Once the problem has been solved, our Law-Society Accredited conveyancers can handle the sale efficiently for you. To book an appointment, please call 020 8840 6640 or email solicitor@starckuberoi.co.uk. Our offices are based in Ealing, Brentford, London Belgravia and Canterbury. Our partner, Raminder Uberoi, can also provide a Notary Public Service at any of our London offices.
