What does a property require to be suitable for a mortgage?
There is no set definition for a property to be considered suitable for a mortgage. The reason for this is because property can be arranged on all types of property and land based assets in the UK. The main consideration is that not every lender will accept every property.
In order to apply for a loan through a highstreet bank, the property typically needs to meet the following.
Functional Kitchen
This doesn’t need to be your dream kitchen, but does need to have the ability to store and cook food alongside some form of washing facilities. At a basic level this could be a single cabinet, a sink and a hob or oven (which can be freestanding). A surveyor may not be positive about the kitchen, but it would keep the property within acceptable limit
Functional Bathroom
The property needs to have at least one flushing toilet and washing facilities such as a shower or a bath. This has to look like a room which can be used practically, so it can’t be a stripped out bathroom
Complete construction
The building and any works which require external sign off (such as building control and completion certificates) must be in place. The property must also be wind and water tight, so if major external elements to the property such as windows, doors or even roofs are being replaced these can’t be underway while a property is valued. The works can be completed prior to, or after financing is complete
Utilities
While an internet connection may be essential to most it is not considered an essential requirement for a property to be suitable for a mortgage. Instead the property must have a water supply (either its own with a filtration system) or mains supply and either gas or electric
Size and scope of the property
A larger property can often present more issues for highstreet lenders. This can be because they have set limitations on the number of kitchens, the number of acres the property can own and if there are outbuildings it becomes a property they will struggle to finance
How can I purchase a property with no kitchen?
It isn’t uncommon for a property to be on the market which has no kitchen. Often this type of property is being sold due to bereavement or repossession and the current owners do not want, or are unable to install a new kitchen.
This means that while the property may be available for a competitive price, the sale is considered restricted and often an estate agent will insist only a cash buyer is able to purchase the property.
You may still want to apply through a high street bank initially if the property has a kitchen in a poor but functional condition. If a surveyor visits a property that they believe requires immediate improvement, but still deem the property suitable for a mortgage, they will often provide feedback to the bank. If the surveyor believes the property requires £20,000 of works, the bank is likely to request evidence that after completion you will have sufficient savings in order to make improvements to the property. Previously, this would have been facilitated through a retention, where the bank holds back £20,000 and then releases this to you once improvements are complete. However, banks typically no longer offer this facility.
If the property has no kitchen then a mortgage will not be suitable as the surveyor will decline to value the property, deeming it unsuitable for mortgage lending purposes. For a property in this condition there will be three options available.
Bridging finance
Although more expensive than a mortgage, a bridging loan may be a suitable option to purchase a property and renovate the kitchen. You will need to have a tight schedule of work and be able to refinance the loan to a mortgage within 3-6 months. The maximum term of the loan is 12 months.
On average, a bridging loan will have an arrangement fee of up to 2%. The interest rate for a loan with a LTV of 75% is 0.84% per month, or 10.08% per year.
Private bank finance / term loan
A private bank loan may provide a suitable alternative for individuals with an annual income of at least £100,000. These loans can be arranged over a longer term, typically 2-5 years, which provides more flexibility and reduces the pressure if there are any delays in the renovation process.
On average, these loans have an arrangement fee of up to 1%. The interest rate for a loan with a LTV of 75% is 1.25% over the Bank of England base rate. As of 23/05/2023, this would provide an annual rate of 5.75%.
Finding an alternative property
If you have identified the area where you would like to purchase and are having difficulty finding a property that meets your budget, it is worth speaking to a broker or seeking a second opinion to ensure that you are being provided with the correct information. A complete property will be more expensive to purchase, but overall, when considering the total cost of the purchase, including the cost of financing and the cost of renovations, it may be an appealing alternative.
There are a number of risks involved with short-term finance and expert advice is advised. If you would like to understand more please speak to an advisor for a free consultation.
How we helped a client purchase a property with no kitchen
We were approached by a couple who had agreed to purchase a new residential property in London. They both worked for a well-known accountancy firm and their ability to borrow was more than sufficient to cover the purchase price of £1.5 million.
The property had been inherited by the current owners and unfortunately had suffered a water leak in the kitchen. The kitchen had been removed and basic remedial work had taken place. There was no long term damage, but the property was now without a kitchen in entirely.
The owners did not want to install a kitchen and our client did not want to pay for a kitchen to be installed prior to purchase.
Our solution was to arrange private bank finance as this was the most cost effective form of finance which was suitable given the condition of the kitchen. The clients had a plan in place to install the kitchen prior to moving in and they then required a conventional mortgage.
Some highstreet lenders will not allow refinance of a property within 6 months of ownership, but there are some who are able to consider the transaction. As soon as the client completed on the purchase we applied for a new mortgage. Once we had the mortgage approval we then scheduled the valuation to take place after the works had been completed. The advantage to applying for a mortgage so soon after completion is that it secured a product for the client. So if market rates were to increase they would be shielded, and if they improved we could update their loan to take advantage.
As the re-mortgage was completed through a highstreet lender they provided a free valuation and free legal service. This means the client did not have to incur the same costs twice in order to move the loan across to a lower-cost long term mortgage.
How can I find out more?
Our advisors can help you understand your options and choose the right mortgage for your needs. We offer a free consultation, and there is no obligation to proceed.
To schedule a consultation, please call us at +44 (0)20 3992 8700 or message on on WhatsApp +44 (0)7828 714566.