Mortgage Lenders and Restrictive Covenants

Zimbidug

Hi there,

I am looking into buying an ex-local Authority property which has a Restrictive Covenant on its Title Deeds. This states that the potential purchaser must have lived or worked in the area for the 3 years previous. This is all fine, and we meet this criteria, only we had a meeting with Barclays today who point blank said they would not lend to us because of this covenant.

The advisor did say that Barclays are extremely risk averse, so I'm hoping this isn't what all mortgage lenders will say - how else do people buy these houses?!

Has anyone had experience for this, and ideally, knows which mortgage companies will lend despite this restriction?

Thanks!

G_M

The problem for Barclays (and any lender) is that if you default on the mortgage, and they repossess, they cannot sell easily to get back the loan. They have to find someone else who "must have lived or worked in the area for the 3 years previous" and this may mean they are stuck with the property for some time.

Whether other lenders will be so cautious, an Independant mortgage Broker should know.

Richard_Webster

If there is a market for such houses at a lower rate than similar houses without the restriction then a lender should lend assuming the lower valuation. Nobody is going to lend a high amount if you are paying a similar price to that for a house without the restriction.

I had this happen years ago and Chelsea wouldn't lend but Halifax would. Whether they will now I don't know.

Zimbidug

The valuation of the property does reflect the restriction, so it seems strange that a bank wouldn't lend.
I am now in touch with an independent mortgage advisor, and look into Halifax...

Thanks!

Richard_Webster

I think the problem lenders have is whether there is a ready market with a fairly reliable level of discount.

If there are quite a lot of houses locally with similar restrictions then they will change hands often and local estate agents and surveyors will know the level of discount to be applied and this will be reflected in the actual sale prices. If there are very few it will be more difficult for a valuer to be certain of his valuation.

That's the logic of the situation, but regrettably, lenders are not very logical about these things.