What Makes a Property Unmortgageble?
An unmortgageable property is a building, house or flat that a secured lender will not approve long-term mortgage finance on.
Also known as a ‘non-mortgageable’, ‘unfinanceable’ or ‘unlendable’ property, the issue often appears during the survey / valuation process. Here, the traffic light rating system used in Royal Institute of Chartered Surveyors (RICS) reports will flag the unmortgageable aspect(s) of the property in red.
Other times, the property owner / seller will disclose the issue prior to the advertising process.
Unmortgageability usually comes down to physical and/or legal risks. The mortgage lender is not willing to collateralise (securitise) the loan. This makes the property difficult to sell, particularly as most buyers these days seek mortgage finance.
However, the underwriters – i.e. those that approve the loan – may be willing to advance the mortgage with certain conditions in place. For example, the buyer may need to pay more of a deposit, accept a higher interest pay rate or agree to have certain (higher premium) insurance policies in place.
Sellers with unmortgageable properties use a specialist estate agent, auctioneer or direct home buying firm (the latter 2 or more common). The aim here is to target cash buyers or those that can access niche lenders who will lend on these types of properties.
Below are 34 common reasons as to why properties are said to be both initially and permanently unmortgageable. We also run through some of the best solutions to deal with each situation…
No Kitchen or Bathroom
As having a kitchen and bathroom are essential requirements in a house, mortgage companies will need to see these facilities (in good working condition) before advancing finance.
Typically, a property that needs these essentials will require full refurbishment. Whilst buyers can obtain finance by adding a simple kitchen and bathroom, it often makes sense to fully renovate the entire property to avoid more costs building up in the future.
A Non-Habitable Property
Usually, the situation is a lot worse than a missing kitchen and bathroom. From roof repairs, non-existent staircases, damaged floorboards and rising damp, the property will often be empty and/or abandoned for many years with little weatherproofing.
Time, energy and a significant sum of money are often needed to bring things up to standard.
Worse still, due to lack of security, we’ve come across properties occupied by squatters. This causes a number of challenging legal issues.
In terms of making the property mortgageable, will depend on the extent of the work required. Also, how long the building has not been worked on / maintained is a contributory factor. For example, if the structure has been unattended during winter periods, there may be a risk of permanent damage. In such situations, rebuilding parts of the building may be the best solution.
We would suggest getting a few reputable builders around to assess the extent of renovation works. In many cases, it would need to go ‘back to brick’ – i.e. removing all the plaster and wall render. This means redoing electrics, gas central heating and other essentials before redecoration (and installing a new kitchen and bathroom). The garden may also require complete clearance and relandscaping.
Given that you’re working on a ‘blank canvas’, it may also be worth seeing how you can make the property as energy efficient as possible. This will certainly help its mortgageability and, indeed, value.
Properties with Structural Issues
Structural issues sometimes only appear during the survey process. However, many sellers are already aware and will notify prospective buyers beforehand.
Perhaps the most cause of structural movement is subsidence – a process where the ground beneath a building sinks. This is can often appear in coal mining areas or those with weaker ground conditions (these will be flagged up in the conveyancing searches).
Other times, the property is built on a former landfill site with an insufficient supporting structure. Large trees, wall tie failure, damaged drainage or water pipes can also contribute to the problem.
Structural issues are typically identifiable by unusually large cracks that run along the internal and external brickwork.
If you are aware of the problem, we would not recommend selling your house unless you’re willing to disclose the full details. Indeed, they’re almost impossible to disguise.
Should you decide to resolve yourself, always seek quotations from qualified structural engineers. Be sure to check their accreditation with the Royal Institute of Chartered Surveyors (RICS). You may discover that repairing underground pipes or drainage is will deal with the problem. This will save you a fortune in remediation costs, particularly compared to underpinning.
Dry / Wet Rot
Dry rot is a fungus that initially grows on internal damp timber but has the potential to spread into brickwork, pointing, stone, plaster and supporting steel. Left for too long, this type of rot can weaken the structure of a property.
It has a mushroom-type smell and is identifiable by a white/grey fluff (looking similar to a thick cobweb). As the fungus grows, the spread looks like a red/orange sponge. Upon full effect (which varies according to the level of moisture), the timber will turn dark and become unsalvagable.
Wet Rot occurs when timbers are exposed to external moisture. Its appearance is often a dark brown or even black fungus with white fur surrounding it.
Much will depend on how much the dry or wet rot has spread. The more moisture in the timbers, the bigger the risk of spread.
Sometimes fixing an apparent leak or reducing condensation resolves the problem. In others, the timbers may need to be completely replaced.
Woodworm and Beetle Infestation
Word-boring insects often appear in barn conversions and properties with timber structural features.
Relative to other factors that can make a property unmortgageable, these infestations are relatively easy to resolve.
A specialist woodworm company can usually deal with the issue reasonably quickly. However, if the problem is left too long, replacement is often necessary.
Damp is one of the most common defects found in properties – particularly older ones. When left unattended, problems could include permanent damage to brickwork, pointing and plasterwork and even rusting of supporting steels.
The two main types of damp are:
- Rising Damp – where groundwater seeps upwards through the foundations and brickwork of the property. It’s commonly evidenced by large patches of superficial water alongside damage to paint and/or mural wallpaper, plaster and skirting boards;
- Penetrating Damp – where water leaks internally through the brickwork, commonly seen with older properties with poor brickwork and/or pointing. Other times, the cause can be as simple as a cracked gutter or drainpipe.
Remember, that damp is often due to condensation. Fitting in extractor fans and vents as well as keeping windows open more are some of the simple solutions here.
If the issue persists, you could seek out a Certificated Surveyor of Timber & Dampness in Buildings (CSTDB) who can roll out a damp proof course.
Be cautious of ‘damp experts’ who mainly specialise in scaremongering to resolve an issue that doesn’t really exist. Be sure to get a few opinions to find out the true root cause of the problem.
Asbestos and Other Chemical Pollutants
Asbestos was outlawed in the British construction industry at the end of the last century. However, the harmful compound remains present in a number of homes – particularly those built before the mid-1980s.
Within the property, asbestos can be found in the walls, roof, floor / ceiling tiles (most commonly in artex), insulation, cladding, sink pads, pipe lagging, downpipes, window frames / cills amongst other areas.
The presence of asbestos may make some mortgage companies concerned. Depending on the severity of the issue, lenders may request complete removal before advancing finance.
Fortunately, despite what can be a costly process, there are many removal specialists who can test deal with removal and disposal. It’s also worth noting is that, as long as the asbestos remains untouched (within a wall for example), there is no immediate risk to health.
Japanese Knotweed and Other Invasive Plants / Trees
Japanese Knotweed (Fallopia Japonica) is a perennial plant with dark red / purple shoots that grow from pink buds from the ground. The plants can grow up to 3 metres in height.
The plant produces larger heart / spade shape leaves that appear in a ‘zig zag’ pattern along the stem. Later in the summer, creamy white flowers appear on the plant.
Whilst seemingly innocuous, the plant spread intensifies with time. Its root strength has the potential to literally dig into concrete, asphalt, cavity walls and drains and affect a property’s structural integrity.
Despite the scare stories, Japanese Knotweed is treatable by removing the underground rhizomes with a specialist chemical spray. The process tends to take between 3 and 5 years, depending on the extent of the issue.
The lender may request insurance backed guarantee – offered by qualified removal specialists – and request confirmation of the following from the provider:
- A certificate of competence for herbicide-related works / an environmental permit / a waste exemption / a trade effluent consent
- A Control of Substances Hazardous to Health assessment
- Permission from the Environment Agency should the Japanese Knotweed be close to a watercourse.
Note that the Royal Institute of Chartered Surveyors (RICS) removed the “7 metre rule” is now obsolete. This means that knotweed growing in a neighbour’s property or an alleyway should not impact the your own ability to get a mortgage.
It’s also worth checking with a specialist that the weed is not getting confused with other (non-harmful) plants. Examples include Russian Vine (Fallopia Baldschuanica), Himalayan Honeysuckle (Houttuynia Cordata) and Red Dragon (Persicaria Microcephala).
Other Invasive Plants
Other plants that could raise concerns (although to a lesser degree than Japanese Knotweed) include Giant Hogweed, Ivy, Himalayan Balsam.
Note that if there are any large Oak, Poplar or Willow trees – the mortgage company could question whether any roots could spread into the building’s foundations. If there are any Tree Preservation Orders (TPOs), a Catch-22 situation could occur as removal may not be permitted.
Also, the lender may also be concerned if the garden is significantly overgrown.
Surrounding Area Issues – Mining Shafts / Landfill / Flood Risk
If there are potentially any risky environmental issues that could potentially affect the integrity of the property, lenders may deem the property as unmortgageable.
As with most of these issues, much will depend on the seriousness of the problem. You may be able to find some more open-minded lenders – but expect to pay a higher interest pay rate.
You will also need to have a suitable insurance policy in place. This may come with a higher premium due to the extra perceived risks.
Short Lease Properties
A property (usually a flat) with a short lease will often render the property unmortgageable due to the escalating costs of extending the lease.
Generally, a property with a lease of under 80 years remaining is too short and costs more to extend.
Some mortgage companies may be willing to advance finance on the condition that the lease will be extended at the point of exchange and completion. However, the process can often take several months – depending on how proactive the freeholder / management company is.
If the freeholder is uncommunicative, you may need to serve a Section 42 Notice. Here, however, you would need to be the owner of the property for a minimum of 2 years. Bear in mind that there would be a range of legal in addition to the normal house sale costs to factor in.
A short lease on a property is just one example of a “defect”. Others include:
- Lack of repair and maintenance provisions within the lease documentation
- Restrictions on standard lettings, which would automatically rule out buy-to-let lending
- Missing or ambiguous descriptions of the development where the property is located
- Issues or lack of clarity regarding rights of way or access within essential parts of the development
- Unclear information of freehold ownership
- Evidence of excessive noise, crime or other concerning activity;
- Deed of Covenant non-compliance by previous leaseholders, resulting in ongoing and unresolved practical / legal issues.
Should the mortgage lender flag up a defective lease, in most cases, an indemnity insurance policy will usually resolve things. The cost will depend on the seriousness of the issue.
Other times, deeds of variation or rectification may be suggested. However, the timescales to adequately draft and serve these may mean that any potential house sale could fall apart.
Rising (and Uncontrollable) Ground Rent
The ground rent scandal emerged in 2017 when a series of new build development companies applied onerous clauses in their contracts. The result is that ground rents have increased by 100s of pounds.
As a result, lenders are reluctant to approve mortgage finance without a clear idea of what the ground rent charges will be.
The good news is that the Leasehold Reform Act 2022 has effectively banned freeholders / management companies from charging ground rents on new leases. This means that there should not be any issues with mortgageability on new build properties.
Whilst the Competition and Markets Authority (CMA) has pledged to take further action to help those in this predicament, nothing has been set in law.
It is also worth checking whether the developer has agreed to remove these onerous clauses (at its own volition). This is often due to the ensuing reputational damage as a result of this debacle.
Land Registry Title Not Split Correctly
An issue that appears with houses or residential buildings that have been split into flats irregularly.
At face value, the flats are separate units – i.e. there are 2 (or more) separate front doors, kitchens, bathrooms and bedrooms with no shared communal spaces. However, both properties exist on a single title.
Such properties are likely to be deemed as unmortgageable due to legal irregularity.
It is possible to resolve the situation by obtaining a certificate of lawfulness. The property may also need to be reconfigured should there have been a breach of minimum space standards.
Dangerous Electrics or Gas Central Heating
Very much related to the non-habitability of a property, if the property has electrical and/or gas-related faults that could endanger lives, mortgage finance may be refused.
For electrical issues, be sure to check either of the following before contracting an electrcian:
- National Inspection Council for Electrical Installation Contracting (NICEIC)
- National Association of Professional Inspectors and Testers (NAPIT)
For gas-related issues, you check the contractor’s accreditation on the Gas Safe Register.
Cheaper Properties (Under £50,000)
Properties priced at £50,000 or below may struggle to obtain mortgage finance. This is often due to minimum lending requirements and the perceived risks that lenders have towards taking on low-valued properties.
However, mortgage companies may be more flexible if the property is being bought as part of a portfolio (even a small one) and the aggregate loan amount reaches above the required threshold.
We often see social housing or cash-rich landlords in search of high yields taking on these kinds of properties.
This is where part of the property effectively overlaps another – but not in the same way a block of flats would as units are not uniformly configured.
Also known as creeping freeholds, this is complex situation to deal with and can sometimes only appear during the conveyancing process.
Much will depend on how wide the unit extends to the neighbouring building. Resolving the issue will not only require the full cooperation of the other property’s owner but also costly legal undertakings.
Boundary Issues / Negative Easements
Somewhat similar to the above, if the Land Registry title plan highlights potential boundary issues, this could put the mortgageability in doubt. Most commonly, a shared / disputed pathway with a neighbour will often be raised as an impediment to raising finance.
Similarly, negative easements effectively prevent a property owner from doing something. We tend to see these issue in rural areas or where residential properties are close to commercial or industrial sites.
Should the mortgage company raise these questions, a good solicitor can negotiate with the counterparty to come to a suitable agreement at a cost.
Party Wall Issues
In a similar vein to boundary-related problems, if there is contention related to dividing walls mortgage lenders may refuse finance.
Governed by the Party Wall Act 1996, disputes usually occur when properties are renovated or when an alteration to a building causes an issue with the shared walls.
Should the property owner not have given the correct notice (minimum of 2 months), or there has been disagreement from the start, the situation could get complicated. This is especially true if there is a party wall injunction or other legal action underway.
The lender may advance finance but much will depend on how cooperative the adjacent property owner is. We would always suggest frank and open discussions in such scenarios, as opposed to proceeding with costly litigation and surveyor costs.
One of the first things a mortgage lender will verify is ownership. If there are no title deeds, some fairly simple steps can be followed at the HM Land Registry. This often happens where the name(s) of the person(s) that have inherited a house is not yet on the Title Register.
Note that if you are selling a property on behalf of an elderly or incapacitated relative, you will need to present a Power of Attorney (PoA).
The large majority of properties are constructed with bricks + mortar with slate or tile roofs. Those that do not fit this description are often deemed as non-standard and, therefore, unmortgageable.
Many were built in the post World War 2 housing boom using non-traditional methodologies and systems.
In alphabetical order: Airie, Boot Pier + Panel, Cornish (Pre Reinforced Concrete), British Iron & Steel Frame, Dorran (Pre Reinforced Concrete, Dyke, Gregory, Hamish Cross, Myton (Concrete / Prefabricated), Orlit (Pre Reinforced Concrete), Parkinson Frame, Reema (Hollow Panel) (Pre Reinforced Concrete), Schindler + Hawksley SGS, Stent, Stonecrete, Stour, Tarran-Newland (Pre-Reinforced Concrete), Underdown, Unity (sometimes known as Butterley) (Precast Concrete), Waller, Wates, Wessex, Winget and Woolaway.
You may also face difficulty insuring the properties too.
With Pre Reinforced Concrete (PRC) properties, several mortgage lenders may be willing to advance finance if it can be proven that necessary structural repairs have been undertaken that will render the property technically sound. The mortgage company will require a PRC Certificate of Structural Completion issued by a suitably qualified engineer.
With many of these properties built by local councils, there’s a possibility that the certificates already exist. However, we’ve often found it hard to trace these documents at local authority offices.
The Grenfell disaster led to legislation that effectively made the commonly used cladding a practically risky building material.
This has put many thousands of property owners in a difficult predicament in that very few mortgage lenders are now willing to advance finance unless there is a valid EWS1 form. This means that the cladding must be effectively replaced and meet government guidelines.
However, with the costs of undertaking such works being so expensive, freehold sinking funds are often unable to stretch far enough. This, combined with most property owners being unable to afford the costs to pool funds together (and a general reluctance to do so), has resulted in a stalemate.
At the current time, most mortgage lenders will not lend on such properties. However, affecting a notable proportion of homeowners, the issue will not be brushed under the carpet.
Anything under 18 metres is now mortgageable and it’s worth keeping an eye on how things evolve.
With the original homebuilders shirking responsibility, we stand with organisations like End Our Cladding Scandal in believing that government should be doing much more to help those stuck in this predicament.
Single Brick (Skin) Properties
Another form of construction that comes under the ‘non-standard’ classification (and therefore unmortgageable) is the appearance of just one course of external bricks.
These properties do not meet modern-day buildings regulations. Many mortgage company surveyors would deem them as unstable, energy inefficient, inadequately soundproofed and prone to heavy moisture penetration.
The remediation costs are extremely expensive and would require the property to be completely vacant to add another layer from the inside. As many of these properties were built in previous centuries, they may be listed and therefore difficult (if not impossible) to work on.
However, there are lenders that may be more flexible as some single-skin properties form part of British heritage and are often very well located.
Modern Method of Construction (MMC)
Sometimes referred to as ‘modular’ housing, an increasing number of new-build developers deploy factory-manufactured housing units. These are then transported and assembled on site. Although very much in the experimentation stage, the speed at which homes can be delivered is what makes the technology the most interesting.
Although there’s a good chance of changing attitudes in the coming years, lenders may be sceptical of lending against such properties. However, it’s often worth contacting the original housebuilder who may be able to furnish the relevant proof of the technical soundness of the property to the mortgage underwriters.
Note that most container homes are not mortgageable.
A few missing tiles is rarely an issue when it comes to mortgageability. However, if the roof is flat, sagging or noticeably damaged the lender may disapprove finance.
Examples of roofing materials (not made of concrete / clay tile or slate) that could be called into question include:
- Corrugated / standing seam metal roofs;
- Steel roofs;
- Solar tile roofs (although lenders are likely to change their attitudes in the coming years);
- Asphalt composite shingle roofs;
- Wood shingle roofs;
- Synthetic rubber slate roofs;
- Green / vegetated / eco-friendly roofs;
- Thatched roofs.
Much would depend on how much roof covering there is. For example, it’s fairly common to see conservatories or lean-tos with more insubstantial roofing material. As long as these areas are not included in the square footage/meterage (floorspace) total of the property, there shouldn’t be an issue.
There are instances where homeowners have undertaken development works – such as a side or upper extension – without obtaining the required planning consent.
Much will depend on your ability to achieve retrospective planning consent. However, the local authority is well within its rights to demand complete demolition of the non-permitted works (at your own cost). The council could also take legal action.
Local Property Blights
If there are noticeable disruptions in the immediate neighbourhood, lenders may have concerns about advancing a mortgage.
Examples include off-putting views, railway lines, bypasses / motorways / junctions / A-roads, airport / landing strips, factories or industrial units. We’ve also seen the presence of newts and/or bats scuppering mortgage finance
These issues will often be flagged during the conveyancing searches and the lender may also check Local Plans beforehand. Much will depend on the day-to-day impacts and whether there will be a material change in the quality of life that such projects or plans bring.
Also known as Negative Covenants, if there are specific terms laid out in the Title Register that restrict the property or parts of the property for certain types of use or requirements.
One of the most common are requirements that the property can only be sold to retirees or other specific age groups or demographics.
This is often a difficult situation to surmount without the owner engaging in a drawn-out legal process.
In a similar vein – if there are overage clauses tied up with a first charge, lenders would typically not want to deprioritise their ability to claim repossession should the situation arise.
No Building Regulations Approval
Even if a property has adhered to the necessary planning regulations, if the local building regulation inspector has not approved the works, lending may be disallowed.
In most cases, it’s a simple case of seeking out the correct certification / compliance documentation. This should be relatively easy to organise for new gas central heating installations or new doors / windows.
If more complex challenges have appeared during the building works, it’s worth liaising with the inspector directly and/or a RICS-approved surveyor. Bad workmanship and
Not Within Minimum Space Standards
Since late 2015, the government set out a minimum floorspace standard for a new build property at 37 square metres. This means that any unit (even a studio flat) that’s under this requirement will struggle to be financed.
Assuming an Energy Performance Certificate (EPC) was produced in the last 10 years, you can check the size of the property by clicking on this link.
Should your property on a single title fall under this minimum size, most mortgage companies would refuse lending. Another ther potential solution could be to extend the existing floorspace (subject to planning consent). Other property owners reconfigure the space within the building’s envelope.
Note that there are several lenders that will certainly fund multi-unit buildings and Houses of Multiple Occupation (HMO). Here, the individual units would need to be owned under a single freehold title.
Commercial and Mixed-Use Properties
Although you may not be able to finance the commercial property with a mainstream lender, it’s well worth speaking with an experienced mortgage broker. Indeed, there are many commercial mortgage companies with more flexible lending policies and a strong appetite for such properties.
Note that residential lenders are still likely to be reluctant to move forward with residential properties above shops, offices, takeaways or other mixed uses. When they do, you can expect lower loan to value (LTV) requirements (i.e. a higher deposit will be required).
High Rise Buildings
Many mainstream mortgage lenders are reluctant to underwrite finance for residential flats in blocks of over 5 to 7 storeys.
However, some may be more amenable to properties that are lower down in the block (the ground or first floor, for example). Mortgage companies may also be more flexible if the property is in a good location with a potentially high (and secure) rental yield.
Located in Council House Area
If there is a high concentration of council-owned homes in the local vicinity, lenders may be concerned about the ability to resale the property.
Much will depend on the location and the volume of council properties. For example, in most larger UK towns and cities, it’s common to see council houses within short distance to high-end properties.
Indeed, regardless of where the property’s location, it’s always worth speaking to an experienced ‘whole of market’ mortgage broker to explore the available finance options.
Should you be seeking mortgage finance for a buy-to-let purchase, lenders may refuse or restrict finance should the following become apparent:
- There is evidence of arrears or erratic rental payments
- Related to the above, issues related to enforcing Section 8 and/or Section 21 eviction legal procedures
- The rent is lower than the market level. In such scenarios, it could be hard to increase monthly receipts (due to affordability restraints, for instance)
- The tenants relying too much on Local Housing Allowance (LHA) payments or the tenancy is regulated (lenders generally prefer private / employed tenants with secure incomes)
- Missing Assured Shorthold Tenancy (AST) agreements / irregular tenancies
- There’s evidence of crime and/or other forms of anti-social behaviour (check local crime rates here).
Much will depend on how easy the various situations are to resolve. Lenders may also stipulate lower loan to value ratios or other conditions prior to approving finance.
In properties where there has been a serious crime, it may be difficult to obtain a mortgage due to a perceived decrease in value.
Much will depend on the extent of the crime and the subsequent repercussions. A former drug den may not cause any issues. In fact, neighbors and the local community may well be excited that the property is going back to normal use. There may, however, be significant refurbishment work required.
Forgetting a more serious crime in a property may not be so easy and, even if you’re able to acquire the property for a low price, lenders may be reticent about advancing mortgage finance.
Unmortgageable Property for Sale
The most likely places to find unmortgageable housing stock are Rightmove, Zoopla and On the Market (the 3 largest property search portals in the UK).
It’s worth setting up alerts from these sites so that you’ll receive emails as and when suitable properties come to market. Many sellers of unmortgageable problem properties use auction houses and it’s well worth registering to national and regional operators.
Most listings will have a notification that the property is for cash buyers only or specify the reason why the property cannot be mortgaged. However, you may need to contact the estate agent or auctioneer directly for more information.
There are also a number of independent sites where sellers list their properties privately. Remember that not all sellers will disclose the real truth about the unmortgageable nature of the property. As a result, they may well use these portals due to unsuccessful attempts at selling on the open market.
- Gumtree’s property pages
- eBay’s property pages
- Mumsnet’s Local Pages
- The House Shop
- Residential People
- Net House Prices
- Property Heads
- Property Mutual
- House Ladder
- Homes 24 (regional property pages)
- Property Pidgeon
- Renovate Me
- Property Renovate (London Only)
- Trovit Renovations
- Wreck of the Week
How to Buy an Unmortgageable House
Whilst the very label “unmortgageable” speaks for itself, there may well be a hidden opportunity to profit should you be able to surmount the underlying problem(s).
With time, effort and money, it’s very possible to turn an unmortgageable property into a home that many lenders would love to finance. As mentioned with many of the issues above, much depends on the extent of the problem.
When buying an unmortgageable property, therefore, it’s important to have an understanding of the cost to resolve the situation. Remember to add in contingencies – particularly as there’s a good chance of hidden problems appearing once the project is underway.
It’s also crucial to also question how long will the problem take you to deal with. The full refurbishment of an average-sized house can take between 2 and 6 months (depending on your own project management experience and budget). Bridging, development loans or even joint venture agreements are a great way to move forward, however, the costs can mount up.
Remember also that property prices do not always increase and market ebbs and flows need to be taken into account too.