Restrictive covenant and getting a mortgage

eg44

Hello. Our mortgage lender has just pulled out at the last minute because of an overage agreement/uplift clause on the property. T seller is now prepared to remove this but put on a restrictive covenant of not being allowed to build a further dwelling on land/garden of existing house. Can anyone tell me if any mortgage companies will lend on this, as we have done some searching but had no luck? Thank you.

Dave_the_Ginger_Cat

It looks a perfectly sensible covenant to me as most planning offices won't let this happen anyway. As a lender I would not have an issue with this.

I would go back to your lender, with some advice from your conveyancer to ask if they'll reconsider

eg44

Thanks for reply. Our solicitor telephoned our lender, Britannia, and they say the covenant affects saleability if the property ever had to be sold in the case of repossession. Our finances are secure and the amount they were going to lend was well within the maximum affordability they calculated, so I don't think that is affecting it. We have also spoken to Natwest and HSBC who aren't interested in lending on a property with a restrictive covenant either, even though I don't believe it affects the property value or saleability at all.

Thrugelmir

eg44 wrote: »

even though I don't believe it affects the property value or saleability at all.

Would reduce it's potential sale value. As an example. If you were uninsured and the property burnt down. Then the lender could realise more money by dividing the plot up for redevelopment.

holly_hobby

As you have discovered lenders in general do not like restrictive covenants at all - and its all to do with their interests on forced sale/disposal on possession.

My advice (if you need a mge to purchase) would be to advise the vendor that you can't proceed if they insist upon the covenant for the above reasons, explaining that even if you don't proceed, if they continue to impose the covenant on the deeds, they will be rather limiting their audience to those whom are cash purchasers.

You also need to be consider that even if you do manage to find a current lender to accept this, if you later decide to sell, your potential purchasers will face the same funding issue, and at that time all lenders may be out, restricting you to a pool of cash buyers - which will obv have an impact on the demand and sale price.

My advice if they are absolute in their decision for this covenant, walk away, its a buyers market.

Hope this helps (even if not what you wanted to hear)

Holly xx

TrickyDicky101

it sounds remarkably cheeky to me for a vendor wanting to impose such a covenant - if they want to retain an element of control then what are they doing selling the place?

eg44

Thank you all for your replies, all interesting and useful to hear. As you say, the restrictions make the house virtually unsaleable. We offered a good price which accounts for the potential to develop the land, although our intention is only to extend, so the seller would never have gained any further, and we agree that it is unreasonably greedy for the seller to retain any hold over the property. After researching, it seems that uplift clauses/overage agreements and such restrictive covenants were somewhat of a fashion in the financial climate 10 years ago but are now basically out-dated, unsustainable, and understandably non-mortgageable. We replied to the seller a few days ago, making it clear that the sale could only go ahead if all conditions are dropped, in fact it was virtually word for word of one of your replies above, so we can only hope the seller realises the reality, but we have not been able to get a response for 3 days now, so will see what today brings and let you know the outcome! Thank you all again.

holly_hobby

Restrictive covenants have always been an issue for lenders, for the reasons given.

The prob here is the vendors conveyencer (who is prob advising), probably won't have the 1st idea (and prob doesn't care) how such things affect mortgage applications and the saleability of the dwelling.

Anyhoo, good luck, and if they refuse to budge, well this wasn't meant, and there's something much better waiting just around the corner for you .

Let us know how you get on.

Hope this helps

Holly x