How to get finance to buy an Uninhabitable property
It’s the bargain of the century: the wreck which could be your dream home. Or it’s a profitable "doer-upper" which you could renovate-and-rent-out, or fix-and-sell.
But here’s the catch: the reason that scores of other buyers haven’t beaten you to the sale is that the property is deemed uninhabitable by mortgage lenders.
And even though you’re planning to do the renovations before you move in – or let it out, or sell it – you can’t get a mortgage on an uninhabitable property.
What’s the definition of uninhabitable?
An estate agent might refer to a property as "in need of work". But uninhabitable goes beyond "tired" or "needing some TLC".
The most basic requirements for a property to be habitable (suitable for living in) are:
- It’s watertight – the roof is in good repair
- It has a basic kitchen
- It has a functional indoor bathroom (with inside toilet)
In addition, most mortgage lenders will require:
- electricity and central heating
- the property is secure
- it’s free of refuse and vermin
The reasoning is that a property that isn’t ready to be lived in (by a buyer, or a tenant) will be difficult for a mortgage lender to sell at short notice if for any reason the whole project goes pear-shaped and they need to call in their loan.
What might make a property unmortgageable?
There are additional issues that might make a property unmortgageable (though not technically uninhabitable):
- Properties with more than one kitchen (that are a single residence, not intended as a multi-occupancy rental). Mortgage lenders will be concerned you may let out part of the dwelling, which would make it difficult to get vacant possession if they need to reclaim it.
- A flat in a block above 6 storeys
- A flat in a block with no lift
- The type of exterior cladding on a block of flats, particularly post-Grenfell (read how we persuaded a mortgage company to lend on an apartment with exterior cladding)
- The type of concrete or construction, particularly on ex local-authority housing (read how we got bridging finance on a problematic style of Cornish housing)
- A flat above a commercial premises (though lenders are becoming more flexible about this, particularly in high street renovations)
- Properties sold at auction are usually unmortgageable: not only because of the condition they're in, but because of the tight turnaround time required for payment: payment needs to be completed within 28 days - much faster than most mortgage lenders can complete a transaction.
Signs that a property may be unmortgageable: what to look out for
- Penetrating damp = structural damage / an unsound roof
- Cracks or bulging in brickwork / leaning chimney stacks = signs of structural movement
- Sagging floor or ceiling = joists may need replacing
- Damaged bathroom fittings or kitchen work surfaces (preventing hygenic food preparation)
- Rotten or broken windows
- Signs of pests or vermin
What are my loan alternatives on an uninhabitable property?
If you can’t get a mortgage on a property, there are alternative short-term borrowing options available to you, which will finance your purchase and renovations until it's in a condition to be refinanced on a mortgage.
Short term bridging finance used to be regarded as risky and very expensive: a last-resort option for the desperate. But a boom in the finance market has led to much more competitive interest rates and flexible terms.
Unlike mortgages, which are priced for the long-term (usually 20 or 25 years) and which carry penalties if you cancel them within the first couple of years, bridge finance is intended to be short-term, and is a useful option for "uninhabitable" properties to cover the work required to get them to mortgageable condition.
If you’re buying the property to live in...
or if the property you’re securing the bridging loan against is your home, this will be a regulated loan. It will subject to the requirements of the Financial Conduct Authority, in order to protect your home:
- The maximum period it can run for is 12 months (unless it’s clear that you just need a limited extension to achieve your refinancing).
- The interest will be "rolled up" into the total loan amount, rather than paid monthly (which reduces the maximum total you can borrow).
If you’re buying the property as an investment...
and it’s not secured against your home, or the home of a family member (or if it is, you own a number of properties, or you’re a "high net worth" borrower) the loan will be unregulated:
- The loan may be extended for 18 months, or longer.
- You can choose to "service" the loan by paying the interest monthly.
How much can I borrow and how much will it cost?
Get a quick estimate of your loan eligibility:
And find out more with our Bridging Loan FAQs.
How do I apply for a bridging loan?
You might be able to find bridging finance directly from a high street bank or building society. But they will only be able to advise you on the details of their own loan products. There are more than 80 lenders in the market offering bridging loans - how much time have you got to compare terms and costs?
Some of the smaller, private lenders who can be more flexible in their loan decisions, and consider your loan application on its own merits, are only accessible via broker intermediaries such as Clifton Private Finance.
Our specialist bridging finance brokers are familiar with all the loan products on the market, and will submit your application to the most appropriate lender for you, so that you get a firm loan offer within days.
Contact us at any time to arrange a no-charge discussion of the finance you need: