How to Mortgage an Uninhabitable Property

Uninhabitable homes are not without their points of appeal. Particularly in today’s housing market, an affordable ‘fixer-upper’ can be just the thing to sidestep impossibly high property prices.

With an uninhabitable home, you have the opportunity to buy into a desirable location and gradually shape it into the home of your dreams. Unfortunately, the vast majority of lenders fail to see the potential in these ‘non-standard’ homes.

Consequently, most homes considered uninhabitable at the point of sale are also considered unmortgageable. As the name suggests, this means that conventional borrowing options are out of the question.

But this doesn’t mean that affordable financing for uninhabitable properties is unavailable. It simply means you have to extend your search beyond the High Street with the help and support of a specialist broker.

What makes a home uninhabitable?

All lenders have their own policies regarding which types of properties are considered unmortgageable.

In most instances, any of the following will classify a home as uninhabitable:

• There is no working bathroom or kitchen inside the property.
• Inadequate protection from adverse weather (windows and rain)
• Issues with mould or dampness that could be unhealthy
• Staircases considered dangerous or in an unsafe condition
• A lack of basic security, such as solid doors and locks
• Any kind of non-standard material used in its construction
• The presence of asbestos or Japanese knotweed
• Any potentially dangerous structural issues

Even if the required repairs and renovations are fairly straightforward, securing a conventional mortgage for homes affected by these issues is practically impossible. Irrespective of how cheap the property may be and the applicant’s financial status, their request for funding will be refused outright.

Does the property need a working bathroom and kitchen?

These are the two rooms major lenders consider most important of all when it comes to a home’s appropriateness for habitation. If either the kitchen or bathroom is not in good working order and in acceptable condition, a mortgage will not be issued against the property.

This applies to both home buyers and buy-to-let investors alike, who are restricted to properties with functional bathrooms and kitchens. Even if the buyer’s plan is to tear out both rooms and have them fully refitted, their application will be rejected.

Does the property need to be weatherproof?

Yes, an appropriate level of weatherproofing is needed for a home to qualify for a conventional mortgage. This basically means that whatever the weather, the occupants of the property and its structural integrity must be sufficiently protected.

How about central heating?

Policies again vary with regard to central heating, given how many older properties do not feature such installations. The surveyor’s report on the property will usually determine the outcome, as they may deem the property to be safe, warm, and habitable in the absence of a central heating system.

Are listed buildings categorised as unmortgageable?

It depends entirely on their state of repair at the time they are placed on the market. Even so, qualifying for a mortgage for a listed building can be complex and long-winded.

During the inspection, it is highly likely that the surveyor will uncover a long list of essential repairs and specialist restoration requirements; the older the property and the more unusual its configuration, the higher the likelihood of ‘non-standard’ issues affecting its eligibility for a mortgage.

If you are considering purchasing a listed property of any kind, consult with an experienced broker in advance to discuss the available funding options.

Does asbestos render a property uninhabitable?

The presence of asbestos is always concerning, but its location and prevalence will determine whether it affects the mortgage on a property.

For example, if asbestos is present in small quantities and has not been damaged, a mortgage valuation may simply recommend its removal before the purchase goes ahead. Likewise, an undamaged asbestos roof is not frowned upon in the same way as other asbestos-containing materials and components.

But if the presence of asbestos in a property is deemed a direct threat to the safety of its intended occupants, it is highly unlikely it will qualify for a mortgage.

What is a non-standard roof in mortgage terms?

Mortgage lending policies based on roof materials and configurations differ from one lender to the next. Some types of roofs that could make it more difficult to qualify for a mortgage include the following:

• Flat Roofs With a flat roof, it will typically be the condition of the roof and the materials it comprises that determine whether it affects mortgage eligibility.
• Felt Roofs: Many mortgage providers consider felt roofing to offer inadequate protection and may therefore refuse to lend against homes that feature it.
• Thatched Roofs: Qualifying for a mortgage with a traditional thatched roof can be surprisingly difficult unless comprehensive evidence of its condition and safety can be provided.
• Tin Roofs: Several factors are taken into account when assessing mortgage eligibility for homes with tin roofs, including their size, configuration, and general state of repair.

If you are considering buying a property that may be affected by any of the above issues, call UK Property Finance anytime for an obligation-free consultation.

Mortgage valuations after essential repairs

Some lenders will agree to issue mortgages for ‘problematic’ properties like those listed above, but only after the required repairs and renovations have been conducted. The process involves feeding back to the estate agent or vendor and requesting that the work be conducted on your behalf.

Unfortunately, this means spending money on a home that you have not yet taken ownership of. In addition, there is no guarantee that the lender will subsequently issue a mortgage if they are not completely satisfied with the condition of the property.

It is therefore a completely unrealistic option for most prospective buyers and one that must be approached with extreme caution.

Bridging loans for uninhabitable property purchases

One of the simplest and most affordable ways to fund the purchase of an uninhabitable home is with bridging finance. A bridging loan is a strictly short-term facility for major purchases and investments, with significantly fewer restrictions than those that apply with conventional mortgages.

From uninhabitable homes to auction property purchases and more, a bridging loan can be used for any legal purpose.

Here is how bridging finance can be used to purchase an uninhabitable home:

• A property in need of a new kitchen and bathroom goes under the hammer at auction for significantly less than its true market value.
• The buyer obtains pre-approval for a bridging loan to cover the costs of the purchase and the subsequent renovations.
• Their bid is successful, they pay the 10% deposit on the day, and the bridging loan agreement is finalised.
• The funds needed to pay for the property and the necessary renovations are released within a few working days.
• The property purchase goes ahead, and the remaining funds are used to install a new kitchen and bathroom.
• At which point, the home is once again considered habitable and is eligible for a conventional long-term mortgage.

The short-term bridging loan can subsequently be transitioned to a standard mortgage, enabling the buyer to repay the balance on their home over several years or decades. In the meantime, the bridging loan has been accruing interest at a rate of around 0.5% per month, adding up to a hugely cost-effective transaction.

For more information on bridging loans for uninhabitable property purchases, contact a member of the team at UK Property Finance today.

Can I use a second-charge mortgage to buy an uninhabitable property?

Another option for getting around the usual mortgage obstacles is to consider a second-charge mortgage. This is where you take out a second mortgage against the equity you have built up in your home.

For example, if you have repaid £200,000 on your £300,000 mortgage, you have £200,000 in equity. This could then be used to procure a second-charge mortgage with an LTV as high as 75%, enabling you to borrow around £175,000 against your current home.

These funds could then be used to purchase an unmortgageable property as a cash buyer, and the second-charge mortgage can be repaid when your property sells.

If you have built up enough equity in your current home, this can be one of the most cost-effective ways to invest in an uninhabitable home.

For more information on any of the above or to discuss uninhabitable property investments in more detail, contact a member of the team at UK Property Finance today.