Un-mortgageable properties refer to properties that are often not accepted by lenders for long-term mortgages. These properties may have various factors that make them un-mortgageable, although these factors may not always be clearly communicated to potential buyers or sellers.
Despite being un-mortgageable, buyers in the UK may still end up paying Stamp Duty Land Tax (SDLT), which is a significant cost when purchasing a property. While it is not possible to completely avoid paying stamp duty, as doing so can result in fees and legal issues, there are exemptions or discounts available. In the case of un-mortgageable properties, specific rules or loopholes may apply, providing buyers with potential exemptions that are not clearly defined.
What Qualifies as an Un-Mortgageable Property?
Typically, an un-mortgageable property is one that is considered unfit for living or unsuitable for mortgage lending. Properties are often categorised as un-mortgageable during the surveying process or highlighted by the seller before listing the property for sale.
Properties deemed un-mortgageable may also be referred to as “unfinanceable” or “non-mortgageable.” Several reasons can render a property un-mortgageable, including legal or physical risks.
For instance, a property may be deemed un-mortgageable if it meets any of the following criteria:
No Kitchen or Bathroom: The absence of essential facilities like a kitchen or bathroom makes the property unfit for everyday living. However, these amenities can be installed after the property is purchased.
Two Kitchens: Having two kitchens in or on the property may raise concerns for lenders, as it could indicate a potential for sub-letting after the property is bought.
Close-Proximity to Commercial Properties: Properties situated near commercial establishments, such as restaurants or shops, can be viewed as risky by lenders. Flats built above commercial properties, for example, may be considered prone to being purchased by businesses.
Short Lease Length: Properties with short lease lengths, typically under 80 years, are often deemed un-mortgageable. Extending a lease can be costly, so mortgage lenders tend to avoid properties with short lease terms.
Non-Standard Construction: Properties constructed using non-standard materials or structures, such as those deviating from brick, mortar, or slate, may be deemed unsuitable for living. Obtaining a mortgage for such properties can be challenging, and securing insurance may also prove difficult.
Weak Infrastructure or Defects: Properties with structural issues pose risks to the occupants’ safety and are generally not considered by mortgage lenders. Similarly, properties with defects like dampness or mould resulting from leak problems are also not suitable for mortgage applications.
Uninhabitable Properties: The term “uninhabitable” encompasses properties that are unsuitable for everyday living due to various reasons. Examples include properties that pose health hazards due to the presence of harmful chemicals, plants, or nearby hazardous sites such as landfills or mines. These properties are considered hazardous and, consequently, un-mortgageable.
Can I Buy or Sell an Un-mortgageable Property?
Although many factors can contribute to a property being deemed un-mortgageable, there is no set definition according to HM Revenue and Customs (HMRC). The aforementioned criteria will certainly affect the ease of getting a mortgage application approved. However, some banks and mortgage lenders in the UK may still consider mortgage applications for un-mortgageable properties. Keep in mind that higher interest rates may apply, making it challenging to meet mortgage repayments.
For those looking to sell un-mortgageable properties, it is advisable to address any issues that render the property un-mortgageable. If selling proves difficult, alternative selling methods such as working with property companies can be explored.
Do You Pay Stamp Duty on an Un-mortgageable Property?
HMRC does not provide a definitive definition of an “un-mortgageable property,” leaving a grey area when it comes to stamp duty. However, properties that HMRC does not consider a “dwelling” suitable for everyday living may be subject to discounted stamp duty rates.
While un-mortgageable and uninhabitable properties are relatively rare, they do exist. Buyers who purchase properties requiring modernisation or repair are not considered un-mortgageable. On the other hand, properties that were unsuitable for dwelling at the time of purchase are considered uninhabitable or, in this case, un-mortgageable.
For instance, buyers who already own properties and purchase additional ones (or portions of them) are typically subject to a 3% surcharge on top of the standard stamp duty for properties or land worth over £40,000. However, if the properties were deemed uninhabitable or un-mortgageable at the time of purchase, a stamp duty rebate may be available for the surcharge initially paid to HMRC.
Many property owners may be unaware that they purchased such properties and may have overpaid in stamp duty. It is advisable to consult with professionals, such as CSD, to determine if you are eligible for a stamp duty rebate or refund and whether your property falls under the un-mortgageable category.
How Can CSD Help with Un-mortgageable Properties?
At CSD, we specialise in helping individuals obtain the stamp duty rebates or refunds they are entitled to. Our team is dedicated to assisting clients throughout the process, as filing for a stamp duty rebate can be time-consuming and confusing without expert guidance.
If you believe your property was un-mortgageable at the time of purchase, you may be eligible for a significant rebate. Get in touch with us today to learn more about un-mortgageable properties or fill out our online claim form for further assistance.
