While the debate continues nationally around how we increase the rate of housebuilding, perhaps we should spare a thought for those trying to buy homes which have already been built.
The process of buying a home is fraught with difficulty from the get go. Buyers contend with unexpected costs, long waits on surveys, onerous administration, and most importantly: exorbitant house prices. Caused predominantly by decades of inadequate housebuilding, the average home in the UK is now 7.6 times the median wage.*
But much less appreciated than it should be is the scale of the housing stock which high street lenders are reluctant to mortgage. Our own research found that there are potentially over 1.5 million homes in the country that could be classified as ‘unmortgageable’ - where they fail to meet the traditional lending criteria of high street banks.** These range from thatched cottages, homes located above commercial premises, homes without workable kitchens or bathrooms, but for many it comes down to the construction of the property.
Many pre and post-war constructions elicit lender caution. The period from 1945-1980, though a historically strong era for housebuilding, saw the construction of many prefabricated and system-built estates. These make up a considerable percentage of the housing stock in many of our major towns and cities, particularly in Birmingham and the north of England.
While these ‘unmortgageable’ properties often have a lower asking price than traditional properties, buyers are still put off purchasing them due to the difficulty in securing mortgages. The first battle is finding a willing lender. According to Together’s research, despite knowing that these properties would be difficult to finance, a fifth (21%) of buyers still had a mortgage application rejected when trying to purchase.*** Almost a third (32%) said they were hampered by a limited choice of lenders. And then buyers often need to price-in higher interest rates for what lenders perceive as riskier loans. Specialist lenders are able to provide quicker finance on these properties but awareness of alternative finance options among the public is low.
These obstacles are putting the brakes on many buyers even considering ‘unmortgageable’ properties, which heaps even more pressure on a housing market already contending with a shortage of properties in our towns and cities. At Together, we believe the fix for the problem lies with the private sector. Getting many of these properties up to standard will require serious investment, namely from the buyers who are struggling to obtain mortgages in the first place.
An encouraging takeaway from our recent consumer research on the subject shows us that there’s still an appetite for these properties, with a considerable number of buyers pushing through the obstacles in the way of purchasing to take advantage of the lower property prices. Much of the public sees the potential for these properties both as homes and investments. Indeed, the cities and regions with the highest concentrations of ‘unmortgageable’ properties also have some of the highest rental yields in the country.
The potential benefits of transforming these properties not only involve bringing housing stock to the wider market, but also in modernising our cities - increasing energy performance standards higher and making our cities more liveable. It’s both vital that mainstream lenders begin to see the opportunities in allowing these properties to be mortgaged, as well as for prospective buyers to be made aware of the alternative finance options available to them. Greater awareness would help reduce declined applications and make it easier for people to unlock the potential of homes that traditional lenders often turn away from.
