Is buying an unmortgageable property possible?
- By: Sangeeta Ranade
- March 2021
You might assume that you can easily borrow the buy all that the properties you’ve viewed But what happens if you’re considering buying an unmortgageable property?
If you are looking to buy property, there is a good chance you’ll need to take out a mortgage to borrow the money required to complete the sale.
The amount borrowed and the other terms of the agreement may vary depending on a variety of circumstances, but additionally, there are several situations that can lead to the property being unmortgageable.
If you get the news that the property you hope to buy is considered unmortgageable, don’t worry. You may still be able to buy the property. However, there are just several things you need to be aware of first.
Here are some things you should consider and some questions you should ask yourself if you are interested in buying an unmortgageable property.
What is an unmortgageable property?
Before understanding how buying an unmortgageable property works, you will need to understand what exactly an unmortgageable property is. To put it simply, an unmortgageable property is one that a potential future buyer will not be able to secure a mortgage on.
This can be due to a wide range of issues and can make a sale complicated. Although there are difficulties that can arise due to these issues, buying or selling an unmortgageable property is not impossible.
What makes a property unmortgageable?
There are several things that can make a property unmortgageable. One of the major things is the lack of a crucial amenity or functional space.
No bathroom or kitchen
For example, if a property does not have a bathroom or kitchen, that can make it unmortgageable. These are both essential parts of a residence, and if the house in question does not have either of these, it will be hard to secure a mortgage on the property.
On the other hand, if the property happens to have structural issues that might lead to an impending collapse then, you may not be able to secure a mortgage either.
Location, location, location
A property that is located in a commercial area may also not be mortgageable. For example, if the property is next to a pub or dance club, there may be some hesitations from a mortgage lender.
High rise problem
If you are hoping to take out a mortgage on a flat that is in a high rise building, you may encounter some issues with this as well, even if the building itself is in a great location.
As strange as it sounds, a property might be too cheap for a mortgage. Some lenders have minimum thresholds, which means they will not be able to lend money for a property that costs below that threshold.
A property might be considered unmortgageable if it’s built out of unusual materials, or if the construction is atypical in any way. For example, if a property is made entirely from concrete, or is built in an extremely modular style such as a container home, there may be some issues with acquiring a mortgage.
Have a survey to protect your potential investment
Ultimately, you will need to have the specific property surveyed as there are many nuances and small details that may be present in your particular situation.
What happens if I can’t take out a mortgage on a property?
If you are not approved for a mortgage for whatever reason, you still have a few options to buy the property.
First off, you can apply for a loan. If the property is worn out or considered uninhabitable for whatever reason, you may be able to purchase the home with a loan, by working with an independent bank or specialist of some kind. You may also be able to purchase the home at auction.
If you are waiting for some money to come through, whether it be from the sale of a separate property or a different kind of loan, you may want to consider a bridging loan. This type of loan is meant to bridge the gap between when you make the purchase and when you have funds available.
These may have no end date, or they may be closed and have a fixed end date. You can consider a bridging loan if you know you will have the funds to complete the purchase soon. But be aware, using bridging finance is expensive, and so should be done with caution.
Bridging loans are also great options if you are planning on purchasing the property with the intent to fix it up and renovate it.
These can help you allocate funds for the renovations, and many bridging loans don’t have any penalties for paying it off early as generally you are only paying for the exact amount of time that you are carrying a balance
Buying with cash
And of course, there’s always the option of paying for the property with cash. This can help you avoid unnecessary fees that come from paying back a loan. The only difficulty with this method is naturally you will have to have the funds upfront.
Budget for the repairs
No matter which method of purchasing an unmortgageable property you decide to use, you should make sure you leave room in your budget to address all of the issues that made the house unmortgageable in the first place.
If the reason was simply the location, there isn’t much you can do to address that. However, if the hesitation was due to a lack of a proper kitchen or bathroom, you’ll likely want to address that once you complete and exchange.
Should I risk buying an unmortgageable property?
Now that you know that buying an unmortgageable property is possible, you might be wondering if you should. The answer is that it depends on why the property was deemed unmortgageable in the first place.
If the reason is due to location and you are comfortable with that, there’s no significant reason you should avoid the purchase.
If the reason was due to water damage, it may prove to be too big of a risk to go forward with the sale.
If you will be able to afford to fix any pressing issues, buying an unmortgageable property can be worth the risk.
While the answer does depend on a case by case basis, this article should help you pinpoint all the questions you should ask yourself prior to making a decision and buying an unmortgageable property.