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Ask an expert – Is this Property Mortgageable?
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This question was submitted by our Ask an Expert form – remember you can ask our team any of your mortgage questions and we’ll feature a select few on our blog. We’ve removed any personal/sensitive information and ensure that the answer can help everyone with the same question.
“Is this Property Mortgageable?”
Lenders use all sorts of criteria to assess whether to approve a mortgage application – they will look at the applicant’s income and employment status, assess their ability to afford the mortgage payments, check their credit history, and work out the maximum they will lend based on factors including the buyer’s proven income, the property’s market value and the available deposit. But most homebuyers don’t even pause to consider whether the nature or condition of the property itself might prevent some lenders from granting a mortgage. After all, it’s not that unreasonable to assume that all properties must be “mortgageable”.
What About Property in Poor Condition?
It’s certainly true that there’s no shortage of people buying – with mortgages – older properties, and those in poor condition, including properties bought at auction. Individual homebuyers and professional property investors alike can often see the benefits in picking up a property in a bad state of repair going for a song and putting in the time, expense and effort to refurbish and upgrade it to either live in, let out or sell for a tidy profit. However, it’s important to remember the fundamental nature of mortgage lending: the property acts as the lender’s security against the mortgage loan in the event of a default and, ultimately, they need to be sure that the property represents sufficient security to be worth lending against. In the case of run-down properties – or even those of non-standard construction – that may not necessarily be the case.
Buying at Auction
It’s important to remember that there is always an element of risk in buying a property at auction. Although you may have safeguarded yourself in advance by obtaining a mortgage agreement in principle, all mortgages are ultimately subject to a valuation survey instructed by the lender. The surveyor’s report will indicate to the lender whether the property represents suitable security for the mortgage. Be aware that there may be certain non-standard construction types that a lender might refuse to lend against – lending policies based on construction type tend to be absolute and non-negotiable. As to the condition of the property: although the surveyor will usually only provide the lender with a valuation report rather than a full building survey, any serious damage or defects – especially those that seem to be structural in nature – could result in the lender declining to grant a mortgage on the property.
How Can You Protect Yourself?
Is there anything you can do to avoid committing to the purchase of a property that you might then be unable to secure mainstream mortgage lending against? Our best advice if you have any doubts whatsoever about the likelihood of securing a mortgage due to the condition of the property would be to instruct an independent survey – if necessary a full RICS Building Survey – before committing yourself to the purchase. This should flag up any serious issues with regard to the construction and condition of the property and, while mortgage approval will always be the final decision of the lender, will at least allow you to proceed with the purchase – or choose not to – on a more informed basis.