Two year homeowner, bought council house under Right To Buy, paid cash. Unable to find secured loan.

Mackem62

Hi all help or suggestions gratefully received.
Two years ago, we bought our council house and paid cash with an inheritance. We are now looking to build a single storey wrap-around extension and require funding for it. We recently had a mortgage in principal agreed but when it came to the application phone call with the bank. We were refused. 
This came out of the blue and never crossed our minds, and the bank didn't pick up on it during the initial consultation.
The problem appears to be the fact that we don't currently have a mortgage and are only two years into the legislated five year scheme whereby if we decide to sell within the first five years of purchase, we need to pay back a sliding scale percentage of the discount we received when buying from the council.
We got a 48% discount on the market value and the bank have said that if we defaulted and were forced to sell, then the council would legally reclaim their entitled discount percentage. At the moment that would be 60% of the discount. ( At current market value, not what we paid). I guess at the moment that would be approx £35k. The amount we are looking to borrow is also £35k, so there would be plenty of equity remaining, I can't see why they are worried.
We really need this extension and are not sure if it is just that the bank we spoke t are ultra cautious, as all was fine until that cropped up.
Any suggestions, we thought we had done the right thing by pay cash to buy outright but it has bitten us on the bum!
Thanks!

ItsComingRome

Lenders typically want to be at the front of the queue when it comes to getting their money back. They don't want to have what is, essentially, a second charge on the home, where the council get first dibs.

There maybe a small number of lenders who would offer this (speak to a broker) or a second charge mortgage might be appropriate but bear in mind the latter could be expensive in terms of fees and the like.

Surely an extension could wait three years until the council have no interest in the property?

theoretica

So if you take the value of the property to be your share of the sale price after repaying the council you would still have a decent loan to value for the mortgage?  Sounds to me like a case for talking to a mortgage advisor who knows what different banks do and don't accept.  Not that you won't be able to get a mortgage, just that you are the wrong flavour of customer for the bank you approached.

tacpot12

Have you looked at unsecured loans? If you could both get a loan of £15,000 each, you can perhaps save the extra £5000 by the time it needs to paid.