How to purchase an unmortgageable property if you cannot pay cash

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Some properties are bought at auction for very low prices, often less than £50,000. The usual reason why property is sold cheap is because it is unmortgageable. Many people buy these properties for cash, but if you do not have the funds and cannot get a mortgage for the property, a bridging loan can be an alternative way of raising funds.

What is unmortgageable property?

There are several reasons why a lender will not provide a mortgage for property. If it is derelict and not fit to live in, you cannot secure a mortgage. If the property is in good condition but does not have a kitchen and bathroom it is classed as unfit for human habitation and is unmortgageable.

If a home is surveyed as part of the mortgage application process, and damp, wet rot or structural problems are found, the mortgage application may be refused.

Standard properties are made from stone and brick. A house made from any other material is considered non-standard and purchasers may find it difficult to get a mortgage. Non-standard houses include timber frame houses and pre-fabricated concrete houses.

If the property is in good condition but sells for less than £50,000 many lenders will not provide a mortgage as they have a minimum £50,000 lending amount.

How bridging finance helps

If property is derelict needs a kitchen or bathroom or needs repairs, it is likely that after the construction job has been finished, the property will be eligible for a mortgage. In this case, a bridging loan can be used to purchase the house and can also cover the building work. After the work has been completed a standard mortgage can be applied for and the mortgage funds used to repay the bridging loan.

If the home is bought at auction in good condition and is eligible for a mortgage, a 10% deposit must be paid at the auction, then the rest paid between 20 and 28 days afterward. It can take longer than 28 days for the mortgage funds to be available. A bridging loan can complete the purchase then repaid when the mortgage funds are ready.

Non-standard construction houses can be purchased with a bridging loan, but borrowers will need to repay the loan within a period of 12 months or less. There are some lenders that will consider a mortgage for non-standard buildings. Ascot Mortgages can probably find lenders who can help, even if you have a poor credit rating or are self-employed.

Loan to value

To purchase an unmortgageable property, you will still require some of your own funds. Loan to value is the term used to describe the percentage of the home’s value that the lenders are prepared to offer. For example, if you purchase a house for £85,000, you may get a bridging loan at a loan to value rate of 70%. This will amount to £59,500, leaving you to raise the other £25,500.

If you want to purchase property, talk to Ascot Mortgages. We can arrange a bridging loan for buildings that do not qualify for a mortgage.

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*Privacy Notice - Any information provided will be treated with confidentiality and will only be accessible within Ascot Mortgages