When lenders receive a mortgage application from someone who wants to borrow, they take account of the borrower's financial circumstances and also the state of the property.
A mortgage is a combination of the borrower's "personal covenant" (their promise to repay), and the "security" of the property (so if the borrower does not repay, the lender can fall back on the value of the property and require it to be sold to repay the money due).
So it's not surprising that lenders take a close interest in the property itself, relying on information from valuers and conveyancers to decide whether it offers suitable underlying security for the loan.
Most properties are mortgageable, even if there is a specific factor that may affect a lender's assessment of risk. If lenders believe that a property would be harder to sell than other similar properties because of a specific factor affecting it, this will affect the lender's assessment of risk, and may be a factor affecting the decision on whether and how much to lend. Lenders are likely to have specific requirements on the following aspects and others:
- Properties of non-traditional construction
- Leasehold properties with short leases
- Properties liable for unknown future costs
- Properties subject to unusual leases (such as solar panel leases)
- Properties containing hazardous materials (such as asbestos)
- Properties close to mineshafts
- Properties where invasive plants (such as Japanese knotweed) are present or close by
LENDERS project survey - making mortgages more sustainable
The LENDERS Steering Group, a mortgage industry group set up in November 2015 and running until April 2017, is seeking help to reduce carbon emissions and aid responsible borrowing, by more accurately estimating domestic fuel costs as part of the mortgage application process.
In endeavouring to develop a process for mortgages to take into account the energy performance of the property on which the borrowing is secured, they have developed a survey that they are inviting homeowners to complete.
The steering group stresses that all answers provided in the survey will be strictly confidential and kept anonymous, and only aggregated outputs from the survey will be made available. The aim of the survey is that the input provided by homeowners will eventually help inform future lending decisions.
Properties at risk of flooding
Whether a building is in an area prone to flooding will also be a factor that affects the lender's assessment of risk, so it is important that the property has adequate flood insurance.
Flood Re, a scheme that will promote the availability and affordability of flood insurance for up to 350,000 homeowners across the UK who are at risk of flooding, launches in April 2016.
See the customer information page on the Flood Re website for a video specifically produced to explain the scheme for consumers.
Grenfell Tower and building safety
Following the Grenfell Tower fire, we continue to work closely with DCLG and individually affected members to advise of work with affected customers, to ensure that customers are treated sensitively. UK Finance has published information setting out some of the assistance which UK Finance members are providing to victims of the fire.
More widely, we are engaging with mortgage members, including commercial funders of social housing, and external stakeholders such as valuers, Royal Institution of Chartered Surveyors (RICS) and the Department for Communities and Local Government (DCLG) in the aftermath of the fire, which has raised questions about the safety of high rise buildings in relation to fire risk.
In terms of implications for lending, each lender will consider whether to lend on a case by case basis, taking into account the affordability of the loan for the customer and the value of the property. Lenders will consider the advice of the mortgage valuer in deciding whether to lend. Many lenders will have existing policies around lending on properties within high rise buildings.
RICS have issued a statement about the approach valuers should take in valuing residential properties which have similar features to that of Grenfell Tower, in light of the Grenfell tower fire.
DCLG are carrying out a building safety programme, including testing on buildings which may have similar features to that of Grenfell Tower, and have provided guidance to owners and managers of social housing on steps they need to take to ensure the safety of social housing.
More information on the steps government have taken since Grenfell, the programme, and the results of the testing, can be found here. You can also register for a regular newsletter, with updates on the building safety programme.