How to finance an unmortgageable property

How to finance an unmortgageable property
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    What makes a property unmortgageable? In the UK, mortgage lenders are extremely strict on lending criteria for housing; what may well appear a bargain when it first appears on Rightmove will often prove to be more challenging to purchase. But what, exactly, is an unmortgageable property, and is it worth the risk of buying one? Could it result in being your dream home if you do buy it?

    To complicate things still further, there are no hard and fast rules on whether your proposed purchase is definitely unmortgageable. It depends on the individual lending policy of the traditional high street lender; some lenders will refuse complex/difficult properties from the outset, while others will consider difficult properties but with strings attached.

    Often when high street lenders consider lending on an unmortgageable property, they will often charge a higher interest rate or perhaps offer a lower loan to value or LTV, or increase the amount of deposit required, often reducing the likelihood of getting a mortgage.

    What makes a property unmortgageable?

    Different lenders will have different specific criteria for property investors wishing to purchase; the first issue to confront is to understand what makes a property unmortgageable.

    A derelict property would be difficult to obtain a mortgage for, as would properties that don’t have a kitchen or bathroom, basic amenities, or those that have structural defects of any kind. For example, properties with dry rot or structural failure of the walls or roof.

    You may also find a property that is close to historical or working mines, landfill sites or an area that may have recently flooded, which will all be more challenging in obtaining a mortgage with traditional lenders.

    Those are serious issues for a mortgage lender to consider, but there are also other issues or lending criteria that are often raised as a red flags for mortgage lenders:

    • Derelict property or uninhabitable property
    • A planning application that has been incorrectly applied
    • Boundary disputes or the property’s location
    • A property with a short lease, usually for less than 70 years, or a defective lease
    • Significant repairs or structural problems
    • The need for a property to be demolished
    • A property built of non-standard construction materials
    • A sitting tenant or a property subject to a regulated tenancy
    • The presence of Japanese knotweed in the grounds of the property

    What finance options are there for unmortgageable properties?

    Property investors and bargain hunters alike do love buying a property that has ‘potential’, but what unmortgageable property finance options are available?

    Finance options available may include:

    • Independent finance groups
    • Specialist lenders
    • Private banks
    • Renovation finance
    • Bridging loans

    The type of finance options available will often be restricted and dependent on your experience in undertaking similar projects, the use of the independent finance groups or private banks, will often be restricted to those property investors with an established CV of similar schemes.

    In order to encourage these type of specialist lenders, you would need to provide details of proposed refurbishment costs, planning permission, building regulations, future buyers or exit strategy and the ability to sell quickly if required.

    So unless you are a cash buyer, then the most available form of finance for the majority of property purchasers is likely to be a bridging loan.

    How can I obtain bridging finance for an unmortgageable property?

    Bridging loans are usually faster to arrange than a traditional mortgage and the lending criteria is different, which often enables property that are deemed to be unmortgageable for a standard mortgage to be considered by a bridging loan provider.

    However, this process will often be far from straightforward, and having an experienced commercial broker assisting you with this process, will ensure that as much as possible, when you are approaching the bridging loan provider, the majority of questions have already been addressed.

    Unfortunately, unless you have a proven track record in property development, the majority of traditional lenders will see you as being a high-risk borrower.

    With Bridging finance, there are a number of different independent finance groups and private banks that aren’t so restricted in their lending criteria. They may consider a finance application on its merits, often taking into consideration the individual property, the current condition, the proposed works and the background/experience of the investor, often lending to inexperienced investors, albeit with increased costs of borrowing.

    The team at One Commercial are experienced in facilitating this type of borrowing. There are no set rules on how much this type of finance will cost, with the cost often being specific to each individual loan.

    Get a bridging loan with One Commercial today!

    One Commercial can assist you in ensuring that you have been placed with the correct Broker, who will have experience in this type of property investment with lots of detailed knowledge to access the range of potential financial products available.

    The Brokers we work with will be able to advise you on the maximum term of the loan, taking advantage of the most current mortgages available and whether it is actually in a mortgageable state.

    If you are considering a bridging loan for a property considered unmortgageable, all lenders will need to fully understand the extent of your other assets, how these are secured and what funds you have available.

    It is very rare for a property to be considered unmortgageable. You just need to speak with the right people to ensure that the specifics of your proposed property transaction are fully understood. Therefore, before you make the decision not to proceed with the proposed purchase, speak with the team at One Commercial.

    If you want to learn more about other ways a bridging loan can help you finance property, then check these out:

    Mark Piper
    Mark Piper

    Mark is the senior advisor at One Commercial Loans and has a wealth of experience in bridging and property finance.

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