The strange reasons why your mortgage application may be rejected

According to real estate agents and real estate experts, lenders are becoming so cautious that they are rejecting mortgages for increasingly ‘strange’ reasons.

The list of reasons why your application could be rejected is growing as lenders try to reduce their risk during what is considered a difficult time for the property market.

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What might once have been seen as oddities, such as old apartment buildings without lifts or former council housing, are now seen as unwanted investments for mortgage lenders.

Before lenders can offer you a mortgage, they require that you carry out a survey of the property to ensure it is in good condition.

They will also have a valuation carried out to make sure the property is worth the price you pay for it, as they don’t want to lend more money than they get back.

Open Property Group boss Jason Harris-Cohen told The Sun that banks and building societies are tightening their criteria “across the board” to reduce their exposure to potentially risky properties.

“While the outlook for the year ahead is positive, interest rates remain at their highest levels since 2008,” he said.

‘At the start of the year we also saw a number of lenders starting to reduce mortgage rates in anticipation of a drop in base rates that never came.

“This will have led to some lenders adjusting the stringency of their lending criteria, especially when it comes to determining whether a property is habitable or not.

“It is possible that homebuyers in today’s market may find their mortgages rejected for some rather strange reasons.”

Here we reveal some of the top strange reasons why lenders reject home loan applications and what you can do about them.

Apartments without elevator

An apartment in a historic apartment building was once seen as a quirky place to live.

But now it can be fraught with complications, making lenders eager to stay far away.

One of those reasons is the lack of an elevator in the building, which means that apartments on the fourth floor or higher are no longer mortgageable, which affects millions of households.

A number of major banks and building societies told The Sun they will no longer offer mortgages on high-rise properties with only stairs in the building, as these are becoming undesirable for an aging population.

An estimated 42% of people living in flats – around 1.5 million households – are on the fourth floor or higher and do not have a lift in their building.

Jonny Magill, Chief Sales Officer at Purplebricks, says: “Once a flat goes above four floors, it can become difficult to sell if there is no lift.

“Most lenders would require the building to have a lift, but it all comes down to the risk appetite of the individual lender and other factors such as location and lease term.”

When you buy a property with a lease, also known as a ‘leasehold’, it means that you are buying the right to live in a house for a certain period of time, but you do not own the land on which it stands. This is more common in apartments.

Leases are typically sold for a fixed number of years, such as 999 years, but some apartments have very short leases, making them more difficult to sell.

Mr Harris-Cohen added: “There has been a move away from apartments on the fourth floor or higher without a lift, and some lenders will refuse to lend on apartment buildings over six or seven floors.”

If you want to buy a high-rise apartment without a lift, consider looking at smaller or alternative lenders, or concentrate on other aspects of the property that make this desirable.

For example, such apartments in popular areas such as central London are likely to sell more easily than those in smaller towns.

‘Uninhabitable’ homes

Real estate experts say more and more homes are being deemed “uninhabitable” because of issues that may not have mattered in the past.

Lenders are typically looking for a property that is structurally sound and utilizes a standard building type, but also generally has functional features for living, such as running water.

But now there are other ‘grey area’ reasons where houses are theoretically fully habitable, but can be classified as ‘high risk’.

“It is these homes that often fall into the category of uninhabitable with some lenders, or in times of market uncertainty, having previously secured a mortgage offer with few problems,” says Mr Harris-Cohen.

He said factors that could make a house “uninhabitable” include short leases, flood risks, wider development plans in a particular area, the fact that the property is partly commercial or the presence of invasive species such as knotweed in the area.

“Whether or not a property is weatherproof will also play a role and the type of roof can have an impact,” he added.

David Hollingworth, associate director at L&C Mortgages, added that homes without a kitchen – or with more than one kitchen – could also face problems.

“A second kitchen in the main house would not be typical and could therefore be flagged by the valuation and impact the lending decision,” he said.

If your dream home is facing problems, it pays to have a detailed investigation carried out to determine whether the risks are really of concern.

A proper survey can show that the house is high risk, or if it becomes clear, can be used as evidence to show to your lender.

Regular surveys, also known as level two or three home surveys, cost a few hundred pounds, but a full structural survey typically costs more than £1,500, according to the Home Owners Association.

Mortgage consultancy John Charcol says that your lender should let you know what needs to be done to possibly make the property mortgageable.

Ex-municipal homes

Homes previously owned by local authorities are increasingly raising red flags with lenders, mortgage experts told The Sun.

This means you may have less choice when it comes to taking out a mortgage.

They will look at several factors, including the number of former council or council homes in the area, how the building was built, whether it is a high-rise and the length of the lease for the house or flat.

Mr Harris-Cohen explained: “It is believed that former local authority properties lose value over time and could deter lenders.”

If you buy an ex-council flat in a block, lenders may also take into account the number of privately owned apartments in the block.

According to John Charcol, lenders typically want at least half of the properties in a block to be privately owned.

“While it may be discriminatory, many lenders consider a building less desirable if it is occupied largely by municipal tenants rather than private owners,” the company explains.

Spray foam insulation

As revealed by The Sun last year, a number of banks and building societies will now no longer lend to homes that have had spray foam installed.

Some lenders will automatically deny applications even if the spray foam is not currently causing a problem.

And real estate agents, brokers and appraisers all report seeing an increase in mortgage applications being rejected due to spray foam in the property.

This could make the approximately 250,000 installed homes virtually unsellable as potential buyers may not be able to obtain a loan.

Spray foam has been used for decades as a means of retaining heat or stabilizing a failing roof covering.

Typically, this method involves spraying a liquid foam onto the inside of the roof, which then hardens and forms a hard layer of insulation.

However, there are risks involved as it can cause structural damage if not installed correctly.

“Structural safety concerns associated with spray foam insulation are causing many to shy away from such features,” Harris-Cohen said.

Ollie Creevy, managing director of Insulation Advisor, added: “We have noticed that homeowners often experience difficulty selling their homes with spray foam insulation, and we have received calls from people wanting to remove it to make their homes more marketable.”

Some lenders require a full structural survey to assess whether spray foam will be a problem, so agreeing to this may mean they decide to lend if no problems arise.

Experts recommend calling professionals to remove spray foam if possible. For a typical three-bed house this could cost anywhere between £3,000 and £4,000, Mr Creevy said.

High property maintenance costs

Maintenance charges and ground rents for apartments are nothing new, but have risen significantly over time and now some apartments are saddled with high costs, making them harder to sell.

And it’s not just apartments: last year we revealed how millions of new-build homes also have to pay maintenance costs, making them less attractive to buyers.

A CMA report released this week found that 80% of homes built by the 11 largest developers now have maintenance costs attached.

As a result, mortgage lenders view these properties as higher risk because they need to be able to sell a house quickly if something goes wrong.

Mr Hollingworth said: ‘Leasehold properties with high ground rents are unattractive to buyers, so banks are reluctant to lend.

“The estate charges are in principle comparable to the ground rent, so people who buy new-build houses with high costs may experience the same problems in the future.”

Before purchasing a home, it is a good idea to thoroughly investigate any costs associated with the home and assess whether it is affordable and whether you can afford to increase the cost.