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Mortgage denied: five homes the mainstream banks don’t want you to buy

21 June 2018

Buying a house is often described as one of the most stressful experiences you’ll go through in your adult life. However, according to new analysis, it can become even more of a headache if your dream home is one of five non-standard property types deemed too ‘high risk’ for most high street banks to lend on.

Today, Pete Ball, Together’s personal finance CEO, reveals his list of the top five property types most regularly turned down for a mortgage by the mainstream banks, which he says, “is not because they are unmortgageable, but rather they don’t tick all the ‘standard boxes’ in most traditional lenders’ risk assessment systems.”

1) Penthouses, flats and apartments

“Most buyers associate a penthouse, with its panoramic views and exclusive appeal, as the height of luxury. However, from the perspective of most mainstream lenders, being positioned at the top of a tall building comes with a range of added risks and costs that you simply don’t get with a similar sized property on ground level. As a result, many lenders are reluctant to provide mortgages on these dwellings. However, it’s not just the penthouses that suffer. We regularly see any flats higher that the sixth floor of a building refused a mortgage for the exact same reason.”

2) Traditional thatched cottages

“While many people dream of escaping to the country and setting up home in a traditional thatched cottage, mortgages on these properties are not easily approved by the high street banks. Although these houses have stood the test of time, their roofs are the sticking point for most lenders. Made from specialist materials that are perceived as more susceptible to fire, they are also expensive to maintain, requiring large parts of the roof to be replaced every 8-10 years, thereby reducing the investment appeal and long-term value of such properties.”

3) Unusual properties

“Following the popularity of TV shows like Grand Designs, a growing number of aspirational homeowners are stretching the boundaries of what we think of as a traditional dwelling. From converting disused water towers, windmills and warehouses, to using modern, ‘non-standard’ construction techniques such as timber framed, concrete, or mostly glass structures, the possibilities are endless. Unfortunately, the high street banks have not kept up with the pace of change here, instead choosing to make their mortgage approval decision on how dominant a certain construction method is in a specific location. If it’s seen as rare or unusual for the area, it’s more likely to affect saleability in the future and therefore is too much of a risk for most lenders.”

4) Ex-council houses

“The introduction of ‘Right to Buy’ in the 1980s transformed the private market for ex-council housing in the UK and since then, many former council flats and houses have successfully changed hands multiple times. However, the majority of mainstream lenders are still reluctant to provide mortgages on these homes, particularly if more than half the properties in the vicinity are still under local authority ownership, as they are deemed as having less value potential than similar homes in more aspirational neighbourhoods.”

5) Flats above a shop

“While many first-time buyers appreciate the convenience of living right on the high street, close to transport links and local amenities, many traditional banks are cautious of providing mortgages on semi-commercial properties above retail units, given that these flats are generally thought to be harder to resell, particularly in a slow housing market. The majority of denied mortgages are for properties above restaurants or fast-food outlets, because of their heightened fire risk. However, many lenders still have a blanket ban on applications for any flat above a shop, as there is no guarantee what type of business (good or bad) will be using the commercial unit downstairs when the property goes back on the market.”

Pete said:

“If you’ve ever dreamt of buying a penthouse flat in the city centre or a traditional thatched cottage in the countryside, you may be surprised to learn that getting a mortgage on these properties from the high street banks could be harder than you think.

“Because most traditional lenders have highly automated and very strict criteria when it comes to their mortgage approvals process, any properties that are slightly offbeat or don’t tick all the boxes in their definition of what constitutes a standard house, are unfortunately regularly met with a rejection letter.

“Almost every week we are approached by mortgage advisers whose clients have been turned down for a loan by the mainstream lenders because the house they want to buy is deemed too unusual or high risk. However, it doesn’t mean that these properties are unmortgageable, so aspirational buyers shouldn’t lose hope.

“At Together, we take a more common-sense approach to lending and look into every applicant’s individual situation when considering a loan, so regularly provide mortgages on everything from flats above a commercial property and ex-council houses, to homes built using non-standard construction materials. As, in our view, just because a property is a little out of the ordinary, this doesn’t necessarily make it a bad investment.”