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I’m a first-time buyer and hope to get on the property ladder this year.

I had an offer accepted on a flat in one of the cheaper areas of Greater Manchester. It is within easy commuting distance from the city centre where I work, and being sold at a price I can afford. I paid a £2,000 fee to reserve the apartment.

The property is an off-plan new build due to complete in three months, so I didn’t think there would be any issues. Neither did my mortgage broker who provided an agreement in principle.

My mortgage was declined because the home isn’t in a ‘saleable’ area: What can I do?

New-build dilemma: Our reader has already lost £2,000 on reserving their new build apartment but they have now has their mortgage application turned down (stock image)

However, the mortgage valuation has now come back stating there is ‘a lack of/no owner occupiers living in the immediate area’ and that it is ‘not in a saleable location.’ The application has therefore been declined.

My broker said they could try again with a different lender, but that the application would be at the mercy of the next valuer’s comments, which could say the same.

Does this mean no lender will offer me a mortgage? Could I lose my £2,000 reservation fee? Would it be unwise to proceed anyway, in case future buyers face the same issue and I am unable to sell the flat in future?

Ed Magnus of This is Money replies: Mortgage valuations are an often underestimated part of the home buying journey.

When buying with a mortgage, the lender will always carry out its own independent valuation on the property.

Many borrowers view it as a formality. But just as a mortgage lender can decide not to lend to a certain individual, so too can it decide not to lend on a particular property.

The valuer or surveyor may also value the property at less than what you have agreed to pay, known as a down valuation, which has implications for the mortgage.

Lenders often have specific criteria outlining the types of property they won’t hand out mortgages on.

These often include a minimum size, often no smaller than 30 sq m or 323 sq ft, which can prove problematic for people buying studio apartments.

Ex-local: Ex council flats can be a problem during mortgage valuations if it is felt there is a lack of demand from other owner occupiers

Ex-local: Ex council flats can be a problem during mortgage valuations if it is felt there is a lack of demand from other owner occupiers

Equally they might exclude new-build homes or flats that are located on upper floors in high-rise apartments, as they think these may lose value or be hard to sell on. 

There could also be issues if they deem the length of the lease too short, in the case of leasehold properties, or the service charge or ground rent too high. 

Some lenders will not consider ex-local authority homes unless the valuer believes there is suitable demand for owner occupation.

Other types of property that can cause an issue include flats over commercial spaces such as shops or restaurants.

NatWest, to take one example, says its valuers will consider aspects that may impact a property’s ‘marketability’ such as noise, smells, anti-social opening hours and fire risk, together with location and demand.

Ultimately, the lender wants to be confident that the property will be sellable in the future, so that they could get their money back in full if it was repossessed.

Your situation is particularly frustrating as it seems to be less of an issue with the property itself, and more an issue with the immediate area. 

But it doesn’t necessarily mean that no lender will offer a mortgage on a property in that particular area.

You may wish to try your luck again with a different lender, given you have already paid the £2,000 reservation fee – though making multiple mortgage applications may start to have an impact on your credit score. 

It would be worth speaking with a mortgage broker to see if they can recommend a different lender that uses a different surveying firm.

It may also be worth re-checking the terms of the reservation fee or speaking with your solicitor in case it is refundable. 

For expert advice, we spoke to Chris Sykes, technical director at mortgage broker Private Finance, and Ben Fuller, associate at mortgage broker SPF Private Clients.

Too small: Studio flats under 30 sq m in size will not be considered by some lenders

Too small: Studio flats under 30 sq m in size will not be considered by some lenders

How common is this issue? 

Chris Sykes replies: We have seen this in certain areas of Manchester, Liverpool and Birmingham, where large blocks of flats are mostly bought by buy-to-let investors.

Sometimes these blocks are built by developers that sell off-plan with the majority of the properties going to investment firms or overseas individuals who snap them up in cash. 

Then, whatever flats are left over, they will sell to the open market.

These properties are seen as less ideal security by valuers and lenders as there are concerns about tenants not looking after properties as well as homeowners would. 

What should they do? 

Ben Fuller replies: In this situation, where the lender’s valuer has declined the property due to its location or surroundings, you will need to move forward with a different lender which, crucially, uses a different valuer or surveyor. 

Many lenders will use the same independent valuer in one area so you may move from say, Barclays to Santander, only to find the bank is sending out the same valuer to assess the property so the outcome won’t change.

Our reader's valuation issue often crops up in certain areas of Manchester, Liverpool and Birmingham, where blocks of flats are bought by investors rather than owner occupiers

Our reader’s valuation issue often crops up in certain areas of Manchester, Liverpool and Birmingham, where blocks of flats are bought by investors rather than owner occupiers

The other issue to avoid is applying to another lender which rejects the application, then another, and so on, ending up with multiple applications and ‘footprints’ on your credit file, which will not help your overall position. 

In order to mitigate the risk of this happening, you should use a broker who can send the property details across to lenders and valuers prior to submission to ensure there is a strong indication that the lender will proceed before you submit an application.

Chris Sykes replies: It can be difficult to borrow against these properties, both as an investor and as someone who wants to make it their home. 

I completely appreciate this is a catch-22. If people can’t buy it as a home, then the problem just continues.

There are a few considerations you should take. First of all, will you struggle to sell the property in the future? 

Could that mean you end up losing more than your £2,000 reservation fee in the long run if you go ahead and purchase this property? 

Lenders criteria and buyers’ ideals change over time, so this is a tough one to answer.

Experts: Chris Sykes , technical director at mortgage broker Private Finance (left) and Ben Fuller, associate at mortgage broker SPF Private Clients

Experts: Chris Sykes , technical director at mortgage broker Private Finance (left) and Ben Fuller, associate at mortgage broker SPF Private Clients

We have had success getting mortgages on such properties in the past, so you could see if your broker can run the property by a selection of lenders, to see if any of them would lend on the apartment – perhaps you may find one that already has done a mortgage in the block. 

You can also approach the developers to see if they’d had anyone successfully get a residential mortgage, and use the same lender.

Or you could request to see what the real split is between buy-to-let investors and homebuyers in the block. 

If you want to continue with the purchase, then apply with a lender that uses a different valuing firm to the one you did initially. Another valuer may not share the same concerns.

Can they get the reservation fee back?

Ben Fuller adds: I have come across clauses in reservation paperwork which state that if the buyer can’t obtain a mortgage, then they should be entitled to a refund of their reservation fee. 

Ask your solicitor to review the paperwork to see if that is possible, just in case a solution can’t be found with another lender.

Bear in mind that even if you are successful in securing a mortgage on your purchase, these difficulties could pop up again when you try to sell. 

However, if you’ve only tried one lender there is a possibility you were unlucky and there may be several other lenders who will be prepared to consider your application. 

Always use a broker, as they know the best lenders to approach and the best way to go about it.

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