Mortgage denial

Peterrichmond

Martin’s money tips

Our daughter is selling a flat in South London. It is a 1920s end of terrace first floor 2 bed, next door on ground level is a pizza shop. She bought it 5 years ago for £225K with a standard mortgage from NatWest without any issues being raised.

She has had the flat on the market for some 12 months and has attracted 4 potential buyers making acceptable offers. Each one of those buyers has then had to withdraw because they cannot get the mortgage they wanted because the property  is next to a pizza shop. 

How can this be a valid reason to decline a mortgage offer when there are probably  millions of properties across  the country with a food outlet next door? And how is it that this was never raised as an issue when she bought the flat in the first place ?

Your advice would be much appreciated. 

canaldumidi

Many lenders decline to lend on properties above, next to, or even in the vicitiy of commercial properties, esp pubs, late night take-aways etc.

This is because (as you are finding) of the possible difficulty of sellig should they have to repossess. More info:

https://www.onlinemortgageadvisor.co.uk/property-types/flat-above-shop/

https://www.onlinemortgageadvisor.co.uk/property-types/mortgage-next-to-commercial-property/

https://www.which.co.uk/news/2019/02/revealed-16-homes-to-avoid-if-you-want-to-get-a-mortgage/

MaryNB

Different lenders have different criteria. They also often change their criteria, so what was acceptable 5 years ago may not be acceptable now.

Many lenders are wary of properties next to commercial properties. A flat above, for example, a coffee shop that's open 9-5 wouldn't be too off putting for some people, if that changes to a late night takeaway it could have a significant impact on desirability, in turn affecting the resale value. A lender would be concerned that if the homeowner defaults on their mortgage and they have to carry out a repossession, they wont be able to recoup the full amount of the loan because the value of the flat has fallen significantly. 

Your daughter's EA  should advise potential buyers to get a broker who can find them an appropriate lender for a property next to a commercial premises. 

Slithery

Lenders can change their criteria whenever they wish. Nothing to stop her selling to a cash buyer.

csgohan4

Auction could be an option, cash buyers

Is cladding an issue as well?

TripleH

We have just secured a mortgage on a property. This is the second provider we went with after the first one decided there was a major issue with the property (we have checked and the issue given was not found to be an issue).

Independent on the market in the area, mortgage providers like to spread the risk to minimise the likelihood of taking a big hit. Were the previous potential purchasers all using the same mortgage provider for funding?

It maybe the provider wants to limit the number of a certain type of property in their portfolio so come up with any vaguely rational reason to reject. Another provider might be more than happy to fill the gap.

seradane

canaldumidi said:

Many lenders decline to lend on properties above, next to, or even in the vicitiy of commercial properties, esp pubs, late night take-aways etc.

This is because (as you are finding) of the possible difficulty of sellig should they have to repossess. 

It's slightly self-fulfilling, though, isn't it? Lender doesn't want to lend because it might be difficult to sell... because lenders don't want to lend. 

There are plenty of properties out there with features that might make it difficult to sell, if it was repossessed... small garden, awkward layout, on a busy road, under a flight path... yet lenders don't seem to decline to lend on those sort of properties, because other lenders aren't declining on them...

user1977

seradane said:

canaldumidi said:

Many lenders decline to lend on properties above, next to, or even in the vicitiy of commercial properties, esp pubs, late night take-aways etc.

This is because (as you are finding) of the possible difficulty of sellig should they have to repossess. 

There are plenty of properties out there with features that might make it difficult to sell, if it was repossessed... small garden, awkward layout, on a busy road, under a flight path... yet lenders don't seem to decline to lend on those sort of properties, because other lenders aren't declining on them...

Criteria will differ, but "next door to a hot food takeaway" is deemed to be a bigger problem than any of the others you listed. And I doubt "millions" of properties are next door to a takeaway, whereas a much greater number will be on busy roads, have small gardens, etc.

MaryNB

seradane said:

canaldumidi said:

Many lenders decline to lend on properties above, next to, or even in the vicitiy of commercial properties, esp pubs, late night take-aways etc.

This is because (as you are finding) of the possible difficulty of sellig should they have to repossess. 

It's slightly self-fulfilling, though, isn't it? Lender doesn't want to lend because it might be difficult to sell... because lenders don't want to lend. 

There are plenty of properties out there with features that might make it difficult to sell, if it was repossessed... small garden, awkward layout, on a busy road, under a flight path... yet lenders don't seem to decline to lend on those sort of properties, because other lenders aren't declining on them...

It's not a case of lender won't lend because future lenders won't want to lend. It's a fear that the nature of the commercial premises could change and devalue the property and future buyers won't want to buy. Therefore, if they need to repossess it, a lender might not be able to sell it at a high enough price to cover the loan.

Say at the moment it's a pizza shop that closes at 10pm. In a few years it closes down and a late night takeaway opens in it's place, catering to people coming home from the pubs & clubs, and with that there is an increased risk of noise and anti social behaviour. That would be a significant deterrent to buyers, compared to a pizza restaurant that closes at a reasonable hour. The ability to resell a property in order to recoup a loan is a massive factor in a lender's decision to lend.

It is possible to get a mortgage on these premises, it's just more difficult and there is a smaller pool of agreeable lenders. 

seradane

user1977 said:

seradane said:

canaldumidi said:

Many lenders decline to lend on properties above, next to, or even in the vicitiy of commercial properties, esp pubs, late night take-aways etc.

This is because (as you are finding) of the possible difficulty of sellig should they have to repossess. 

There are plenty of properties out there with features that might make it difficult to sell, if it was repossessed... small garden, awkward layout, on a busy road, under a flight path... yet lenders don't seem to decline to lend on those sort of properties, because other lenders aren't declining on them...

Criteria will differ, but "next door to a hot food takeaway" is deemed to be a bigger problem than any of the others you listed. And I doubt "millions" of properties are next door to a takeaway, whereas a much greater number will be on busy roads, have small gardens, etc.

I mean, personally I'd be more put off by a very busy road or near an airport more than a nearby takeaway, but I guess everyone's different.

MaryNB said:

seradane said:

canaldumidi said:

Many lenders decline to lend on properties above, next to, or even in the vicitiy of commercial properties, esp pubs, late night take-aways etc.

This is because (as you are finding) of the possible difficulty of sellig should they have to repossess. 

It's slightly self-fulfilling, though, isn't it? Lender doesn't want to lend because it might be difficult to sell... because lenders don't want to lend. 

There are plenty of properties out there with features that might make it difficult to sell, if it was repossessed... small garden, awkward layout, on a busy road, under a flight path... yet lenders don't seem to decline to lend on those sort of properties, because other lenders aren't declining on them...

It's not a case of lender won't lend because future lenders won't want to lend. It's a fear that the nature of the commercial premises could change and devalue the property and future buyers won't want to buy. Therefore, if they need to repossess it, a lender might not be able to sell it at a high enough price to cover the loan.

Say at the moment it's a pizza shop that closes at 10pm. In a few years it closes down and a late night takeaway opens in it's place, catering to people coming home from the pubs & clubs, and with that there is an increased risk of noise and anti social behaviour. That would be a significant deterrent to buyers, compared to a pizza restaurant that closes at a reasonable hour. The ability to resell a property in order to recoup a loan is a massive factor in a lender's decision to lend.

It is possible to get a mortgage on these premises, it's just more difficult and there is a smaller pool of agreeable lenders. 

Shouldn't that just be justification for a more conservative/lower valuation instead of an outright refusal to lend, though? I mean, ultimately everything will be able to be sold if it's set at the right price.

AdrianC

user1977 said:

And I doubt "millions" of properties are next door to a takeaway

There were an estimated 37,000 dedicated takeaway food outlets in the UK in 2019, plus a number of restaurants who offer it as a secondary service. So let's say 60k total.

There are 28m households in the UK.

So about one in 235 households have a takeaway next door, counting two immediate neighbours per takeaway. In practice, it'll be lower, because many are not next door to any residential property.