Selling an Unmortgageable Property: Who Buys It and at What Price

01The Situation

A property is unmortgageable when lenders will not lend on it as it stands. It usually comes out when a buyer's mortgage valuer marks it "unsuitable for mortgage purposes" and the sale falls through. From then on, the only buyers are people paying cash or using a short-term bridging loan. They price the home as what it will be worth once the problem is fixed, less the cost of fixing it, less their costs and their profit.

These are the usual reasons lenders say no:

No Working Kitchen or Bathroom

Lenders want a home someone can live in on the day. Fixable, often for a few thousand pounds for a basic kitchen or shower room.

A Short Lease

Each lender sets its own minimum. Many want 70 to 85 years left when the mortgage starts, and some also want 30 years or more left when it ends. Fixable: you can claim a lease extension by law, which adds 90 years. Since 31 January 2025 you no longer need to have owned the flat for two years first. You can start the claim and pass it to your buyer. Under 80 years, the price still includes "marriage value", a share of the rise in value. The 2024 Act removes that, but that part is not yet in force.

Structural Problems

Active subsidence, a bulging wall, a failed beam. Lenders want a structural engineer's report, and sometimes months of monitoring. Old movement that has stopped is often fine once an engineer says so in writing.

Non-Standard Construction

Some post-war concrete houses (Airey, Cornish and Unity are among them) were designated defective under Part XVI of the Housing Act 1985. Most lenders will not lend on them without a certificate showing a licensed repair was done. Repairs can cost tens of thousands of pounds. Other types, such as steel framed or timber framed houses, are often fine with some lenders.

Japanese Knotweed

Rarely fatal now. Under the RICS guidance from 2022, most lenders will lend if a specialist firm has put in a treatment plan with an insurance-backed guarantee. Fixable before a sale.

Spray Foam Insulation in the Roof

Many lenders decline or want a surveyor's check, because foam can hide rot in the timbers. Removal usually costs about £3,000 to £6,000 for a typical house.

Concrete Problems

High-alumina cement (used in some buildings from the 1950s to the 1970s) and reinforced aerated concrete panels (known as RAAC) make lenders cautious. An engineer's report showing the concrete is sound helps with some lenders. Replacing RAAC is a big job.

A Flat Above a Shop, Takeaway or Pub

Some lenders refuse, mainly over fire risk and smells. Not fixable by the owner, but other lenders do lend.

Cladding

Without an acceptable EWS1 form, many lenders will not lend on a flat in a block with unsafe outside walls. The owner cannot fix the building, but most owners of qualifying leases pay nothing for cladding repairs.

No Sign-Off for Building Work

A missing building control certificate for a loft or extension can stop a lender. Often fixable with a regularisation application to the council or, where nobody is likely to act, an indemnity policy.

New or Converted Flats with No Warranty

Most lenders want a 10 year new-home warranty or a professional consultant's certificate for a newly built or converted flat.

Here is how that played out on one building.

A small property company, run by one director, bought a large Victorian house in south London for £680,000, with planning permission to turn it into two two bedroom flats and a one bedroom flat at the top. It was paid for with a twelve month bridging loan: 70 per cent of the price on day one and £150,000 more in stages for the building work, £640,000 in all. Interest was 0.85 per cent a month, added to the loan and paid at the end, plus a 2 per cent arrangement fee and a 1 per cent exit fee. The director had put in about £240,000 of his own money and signed a personal guarantee.

In month nine the main builder went into liquidation and left the site about 70 per cent done. At the end of month twelve about £720,000 would be due.

02The Diagnosis

Unmortgageable Three Times Over

No kitchens, no working bathroom and no stairs to the top floor. No building control sign-off. And the warranty firm had approved the old builder, not a new one, so even finished flats would be hard to sell to buyers with mortgages until a warranty was back in place.

No Refinance

Mortgage lenders will not lend on a half-built conversion. Most development lenders would not take over a stalled site with three months left on the loan.

Not Enough Time to Finish

A new builder, new prices and the rest of the work would take six to eight months.

Default Interest

After the end of the term, this loan's rate jumped to 2.5 per cent a month, about £18,000 a month on £720,000. A court can refuse to enforce a default rate that is really a punishment, but a rise like this is usually allowed.

Receivers

The lender could appoint a receiver to take over and sell. A receiver must take reasonable care to get the best price available at the time, but does not have to finish the work or wait for a better market. Stalled sites sold this way often go at auction for well under their value.

03The Value

Who buys an unmortgageable property:

Cash Buyers

Investors and property companies with their own money. They can complete in weeks and do not need a valuer's approval.

Bridging Buyers

People who borrow short term, often up to about 70 to 75 per cent of the price, at interest of roughly 0.6 to 1 per cent a month plus fees. They need a clear plan to repay, usually a mortgage once the problem is fixed, or a sale.

Builder-Developers

For bigger jobs, like this one, a builder with their own team and a development lender.

How they price it. They start from the value once fixed and take away every cost of getting there, then their profit. For this building, three recent conversions on nearby streets put the finished flats at about £425,000, £405,000 and £370,000: £1.2 million in all. A quantity surveyor put the cost to finish at £140,000, including 10 per cent contingency and VAT at the reduced 5 per cent rate for converting a house into more homes.

Finished value, £1,200,000
less building work, £140,000
less warranty, building control, new meters and professional fees, £18,000
less development finance for seven months, with fees, £50,000
less stamp duty and legal costs on the purchase, £33,000
less agents' and legal fees on selling three flats, £24,000
less a 15 per cent profit on total cost, about £155,000

That leaves about £780,000.

Then the director's two routes:

Let the Lender Sell

Default interest from month 13, a receiver by month 14, auction by month 16. The debt grows to about £792,000, plus about £30,000 of receiver, legal and auction costs. Stalled sites like this were going for about £680,000. That leaves a shortfall of about £140,000, which the lender would chase under his personal guarantee.

Sell First at £780,000

Repay about £712,000 with interest to the day, pay about £10,000 in selling costs, and keep about £58,000. He loses most of the £240,000 he put in, but has no debt and the guarantee is released.

The gap between the two is about £200,000 to the director personally.

04The Execution

Day 1: Call the Lender

Before the term ran out, the director sent a one page plan: surveyor booked, buyers being approached, sale agreed within six weeks, completion before month twelve. The lender agreed in writing not to appoint a receiver or charge default interest, as long as he sent weekly updates and took no less than an agreed figure. Its legal fee of £1,500 was added to the loan.

Weeks 1 to 2: the Cost to Finish

The quantity surveyor's report, £2,800, went room by room with photos. It showed which work could stay (first fix wiring and plumbing tested and passed) and which had to be redone.

Weeks 1 to 3: the Paper Pack

Planning permission, with proof that the conditions needing approval before work began had been approved. The building control file and which inspections were done. The warranty firm's terms for a new builder: a fresh inspection and £9,000 for three flats. Party wall awards with both neighbours. Confirmation that no community infrastructure levy was due, because the house had been lived in before the works. Applications for three electricity and water meters. Legal cost about £1,500.

Weeks 3 to 5: Offers

The pack went to builder-developers whose mandates covered stalled schemes in south London. Three offered: £740,000, £765,000 and £780,000. The highest came with a development lender's terms agreed and a valuation booked.

The Stamp Duty Question

The buyer's tax adviser looked at whether the building counted as a home on the day of purchase. With no kitchens, no working bathroom, no stairs to the top floor and an open back wall, non-residential rates could apply, about £28,500, against about £68,000 at the higher residential rates. HMRC challenges these claims often and wins many where a building could be lived in after repairs, so the buyer got written advice and photographed the building on completion day.

Weeks 5 to 9: Exchange and Completion

The lender gave a redemption figure to the day, was repaid from the sale and released its charge at completion. No default interest was ever charged.

Months 3 to 8: Finish and Sell

The buyer's team finished in five months with the warranty in place. Two flats sold to buyers with mortgages before the work was done, the third a month later.

05The Outcome

Bought for

£780,000

Spent

£265,000 on building work, fees, finance, stamp duty and selling costs

Worth After

About £1.2 million

Value Added

About £155,000

The director repaid the loan in full, kept about £58,000 and walked away with no shortfall and no personal guarantee hanging over him.

The Lessons

Find out exactly why lenders said no. Ask for the valuer's reason in writing. Each reason has its own fix and its own price.
Fix the cheap ones before you sell: a basic kitchen or bathroom, a knotweed plan with a guarantee, spray foam removal, missing sign-off, or starting a lease extension.
Do not try to fix what you cannot: a defective concrete house, a block's cladding or a flat above a takeaway. Sell to a cash buyer and price it properly.
A clear report on what the fix costs, from a surveyor or engineer, narrows the discount more than anything else.
If a loan is coming due, talk to the lender before the date, not after. Default interest and receivers cost far more than a fair sale.
This is general information, not legal or financial advice. Check your own position with a solicitor or a chartered surveyor.