Mortgage denial

user1977

seradane said:

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.

Fair enough, but if you're next door to a takeaway the chances are you're also on a main road anyway, plus likely to have other commercial premises causing disturbance - the takeaway might just be the final straw.

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.

Mainstream lenders work on high volumes / low margins, they don't want to invest time working out formulas for circumstances peculiar to a particular property - easier just to say no and move on to some easier business.

MaryNB

seradane said:

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.

An airport is far more permanent feature. A lender can judge a property accordingly and generally isn't worried about airports suddenly popping up and affecting the property value.  A commercial premises can change much more easily.
There is a shop around the corner from my house, closes at 10pm every night. I've just found out they're planning to apply for a license to sell alcohol 24 hours a day - a far easier change than the main road it's located on suddenly becoming a motorway.

A lender can try to apply a much lower valuation but how low? Do they just base all their valuations on what happens if it becomes a premises that serves alcohol until the early hours. It will put off buyers who only have a small deposit. Many lenders don't want to deal with the complexities of dealing with lending next to a commercial premises - therefore buyers will just have to go to a specialist lender. There are thousands of residential properties above and next to commercial properties, buyers are just limited to the pool of lenders they can use or they pay in cash and take on all the risk of it losing value.