Unmortgageable Property: Can You Get a Mortgage and What Should You Do?
You have found a property at a great price. It has potential, the location works, and you can already picture the finished renovation. Then the lender's valuation comes back with a problem: the property needs so much work that a standard mortgage may not be available in its current condition.
This is often described as an unmortgageable property. It does not necessarily mean the purchase is impossible. It usually means the property, the works and the way you fund the purchase need to be considered together from the start.
What is an unmortgageable property?
There is no single definition used by every UK mortgage lender. Each lender has its own property criteria and the lender's valuer also has an important role. In simple terms, a property may be treated as unmortgageable when the lender does not consider it suitable security for a conventional mortgage in its current condition.
A property being dated, unattractive or in need of cosmetic refurbishment does not automatically make it unmortgageable. The difficulty usually arises when the condition is serious enough to affect habitability, structural integrity, safety, marketability or the lender's ability to resell the property if it ever had to take possession.
What makes a property unmortgageable?
Common issues that can cause a mortgage lender or valuer to raise concerns include:
No functioning kitchen or bathroom facilities
No running water or essential services
Serious electrical or heating problems
Major roof damage or significant water ingress
Structural movement, subsidence or major cracking
Severe damp, rot or timber problems
Fire or flood damage
Missing floors, ceilings, windows or doors
A property that has effectively been stripped back to a shell
Extensive refurbishment or structural work being required before occupation
Other issues that make the property difficult for the lender to value or resell
The exact outcome depends on the lender, the valuation and the nature of the defect. A property declined by one lender is not automatically unacceptable to every lender.
Can you get a mortgage on an uninhabitable property?
Sometimes, but a normal residential mortgage can be difficult where a property is genuinely uninhabitable. A specialist lender may have more flexible property criteria, but there are cases where short-term property finance is more appropriate until the essential work has been completed.
The important point is not to assume that changing lenders will automatically solve the problem. Before another application is made, it is useful to understand exactly what the valuer objected to and whether that issue is lender-specific or fundamental to the property's condition.
What happens if the mortgage valuation says the property is not suitable?
A valuer can recommend that the lender does not proceed until specified works are complete. In some cases the lender may apply a retention, meaning part of the mortgage advance is held back until required work has been carried out and confirmed.
That can create a funding gap. You may need money to complete the purchase before you legally own the property and can carry out the work. This is why the finance strategy needs to be planned before exchange of contracts, particularly for auction purchases.
Option 1: Bridging finance for an unmortgageable property
Bridging finance is one of the most common ways of funding a property that cannot initially be bought with a conventional mortgage. A bridging loan is short-term secured finance and specialist lenders can consider properties that fall outside normal mortgage criteria.
A typical bridge-to-term strategy may look like this:
Purchase the property using bridging finance and your own deposit or equity.
Complete the essential renovation or remedial work.
Bring the property up to a condition acceptable to a mortgage lender.
Apply for a residential or buy-to-let mortgage, depending on how the property will be used.
Use the new mortgage advance to repay the bridging loan.
Bridging finance is normally more expensive than a standard mortgage, so the timescale, interest, fees and exit strategy should all be understood before you commit to the purchase.
Example: buying a house that needs major renovation
Imagine a property is available for £180,000 but needs around £40,000 of work, including a new kitchen, bathroom, heating and electrical improvements. A mainstream mortgage lender declines the property because of its current condition.
One possible approach could be short-term finance to complete the purchase and renovation, followed by a refinance once the property meets normal mortgage standards. If the renovated property is then valued at a higher figure, the new lender will still assess the application using its own loan-to-value limits, affordability rules and valuation. A higher end value therefore does not automatically mean all of the money spent can be released.
Option 2: Refurbishment finance
For projects involving more substantial works, refurbishment finance may be more suitable than a straightforward bridging loan. Depending on the lender and the type of project, finance can sometimes be structured around both the acquisition and the refurbishment.
Some facilities release parts of the refurbishment budget in stages as work progresses. This can be useful where the project is too extensive for a normal mortgage but there is a clear programme of works and a realistic exit strategy.
Option 3: Buy with cash and refinance afterwards
If you have sufficient cash, you may be able to purchase the property without mortgage finance, carry out the work and then arrange a mortgage once it is in an acceptable condition.
However, you should investigate the likely refinance options before buying. The future mortgage will still depend on the completed property's value, your affordability, the property's use and the lender's criteria at that time.
Option 4: Ask whether the seller can complete essential work
If the issue preventing the mortgage is relatively contained, it may be possible to negotiate with the seller. For example, if a valuer requires a particular facility or repair before lending, the seller may be willing to complete it before the mortgage valuation is revisited.
This is not always practical, especially with probate, repossession and auction sales, but where it is possible it can be significantly cheaper than arranging short-term finance.
Buying an unmortgageable property at auction
Auction purchases need additional care because completion deadlines are usually much shorter than a standard private treaty purchase. Once you have successfully bid and exchanged contracts, you are normally committed to completing under the auction contract.
If the property needs major work, arranging the finance strategy before bidding is crucial. You need to understand how the purchase will be funded, how much cash is required, what work must be completed and how the short-term finance will ultimately be repaid.
What if the property has structural problems?
Where there are signs of structural movement, significant cracking, roof failure, foundation problems or rotten structural timbers, an appropriate building survey or structural engineer's report may be needed before you commit to the purchase.
The aim is not simply to obtain finance. You also need a realistic understanding of the defect, the repair cost and whether the finished property will be acceptable to your intended long-term lender.
The most important part: plan the exit strategy first
If you use bridging or refurbishment finance, the exit strategy is fundamental. The short-term lender will want to understand how its loan is expected to be repaid.
Typical exits include:
Refinancing onto a residential mortgage if you will live in the property
Refinancing onto a buy-to-let mortgage if it will be rented out
Selling the renovated property
Repaying the facility from another clearly evidenced source
A sensible approach is to assess the likely exit lender criteria before the purchase completes rather than waiting until the refurbishment is finished. This can reduce the risk of completing the work and then discovering that the planned refinance does not fit.
Check the full renovation budget, not just the purchase price
A property can look like a bargain because the asking price is low, but the real cost is much wider. Depending on the transaction, your budget may need to account for:
Purchase price and deposit
Stamp Duty Land Tax where applicable
Legal and valuation fees
Finance arrangement and broker fees
Interest on short-term borrowing
Building and refurbishment costs
Architect, structural engineer and Building Control costs where required
Insurance, utilities and council tax during the works
A contingency for unexpected problems
The cost of refinancing once the project is complete
Renovation projects frequently reveal issues that were not obvious on the first viewing, so allowing a realistic contingency is important.
Does a missing kitchen make a property unmortgageable?
It can, but not in every case. Some lenders and valuers require basic kitchen facilities before they regard a property as suitable security, while criteria can differ between lenders. The same principle can apply to bathrooms, utilities and other essential facilities. If a valuation has already been carried out, the valuer's comments are the best starting point for establishing what actually needs to be resolved.
Can you get a mortgage on a house that needs renovation?
Yes. Many properties needing renovation can still be mortgaged. The key distinction is between a property that merely needs updating and one whose condition falls outside the lender's security requirements. A tired kitchen, old decoration or worn flooring is very different from a property with no functioning facilities or major structural defects.
Is bridging finance the only option?
No. Depending on the property and your circumstances, the solution could be a mainstream or specialist mortgage, a mortgage with a retention, refurbishment finance, bridging finance, cash purchase followed by refinancing, or repairs completed by the seller before completion.
The most appropriate route depends on why the property has been declined, what work is required, how quickly completion must take place and what you intend to do with the property afterwards.
Do not assume 'unmortgageable' means impossible
An unmortgageable property is usually a property that does not fit standard mortgage criteria in its present condition. That is a financing problem to solve, but it should also be treated as a warning to investigate the property carefully before committing to it.
At Drummonds Finance Group, we can review the property, the valuation comments, the proposed works and your intended exit strategy before considering conventional mortgage, specialist mortgage, bridging and refurbishment finance routes.
If you have found a property that you have been told is unmortgageable, contact Drummonds Finance Group before exchanging contracts or bidding at auction. We can help you understand what finance routes may be available and what needs to happen for the property to become suitable for longer-term mortgage lending.
Your property may be repossessed if you do not keep up repayments on your mortgage or other loans secured against it. Bridging and specialist property finance can carry higher interest rates and fees than a standard mortgage. All applications are subject to lender criteria, valuation and individual circumstances.
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