I'm a starter and hope to get on the property ladder this year.
An offer was accepted for a flat in one of Greater Manchester's cheaper areas. It is within easy commuting distance of the city center where I work, and is sold at a price I can afford. I paid £2,000 to reserve the apartment.
The property is an off-plan new build due to be completed in three months so I didn't think there would be any problems. Neither does my mortgage advisor who has issued an agreement in principle.
New build dilemma: Our reader has already lost £2,000 booking their new build apartment, but now their mortgage application has been rejected (stock image)
However, the mortgage valuation has now returned and indicates that there is 'no/lack of owner-occupiers living in the immediate area' and that the property is 'not in a marketable location'. The application was therefore rejected.
My agent said they could try again with another lender, but the application would be at the mercy of the next appraiser's comments, who might say the same thing.
Does this mean that no lender will offer me a mortgage? Can I lose my €2,000 booking fee? Would it be unwise to proceed anyway, in case future buyers face the same problem and I cannot sell the flat in the future?
Ed Magnus from This is Money answers: Mortgage appraisals are an often underestimated part of the home purchasing process.
When purchasing with a mortgage, the lender will always carry out its own, independent appraisal of the home.
Many borrowers consider it a formality. But just as a mortgage lender may decide not to lend money to a particular individual, they may also decide not to lend money on a particular property.
The appraiser or surveyor may also value the property at a lower value than what you have agreed to pay, also known as a downward valuationwhich has consequences for the mortgage.
Lenders often have specific criteria describing the types of properties on which they will not lend mortgages.
These often include a minimum size, often no smaller than 30 square meters, which can be problematic for people buying studio apartments.
Ex-local: Ex-council flats can be an issue in mortgage valuations if there is thought to be a lack of demand from other residents
They could also exclude new-build homes or flats that are on the top floors of high-rise apartments, thinking they could lose value or be difficult to sell.
Problems can also arise if they find the rental period too short, in the case of leasehold properties, or if the service costs or ground rent are too high.
Some lenders will not consider former local authority properties unless the appraiser believes there is sufficient demand for owner occupancy.
Other property types that can cause a problem include apartments above commercial spaces such as shops or restaurants.
NatWest, to take one example, says its valuers will consider aspects that may affect the 'saleability' of a property, such as noise, odors, anti-social opening hours and fire risk, along with its location and ask.
Ultimately, the lender wants to be sure that the property will be marketable in the future so that they can get their money back in full if it is foreclosed on.
Your situation is particularly frustrating because it seems to be less of a problem with the property itself, and more with the immediate area.
But this does not necessarily mean that no lender will offer a mortgage on a property in that particular area.
You may want to try your luck with another lender as you've already paid the £2,000 booking fee, although submitting multiple mortgage applications could impact your credit score.
It would be worth speaking to a mortgage broker to see if they can recommend another lender who uses a different valuation agency.
It may also be worth re-checking the terms of the booking fee or speaking to your lawyer if these are refundable.
We spoke to for expert advice Chris Sykestechnical director at mortgage broker Private Finance, and Ben Fulleremployee at mortgage broker SPF Private Clients.
Too small: Studios under 300 sq ft are not considered by some lenders
How often does this problem occur?
Chris Sykes replies: We have seen this in certain areas of Manchester, Liverpool and Birmingham, where large blocks of flats are usually bought by buy-to-let investors.
Sometimes these blocks are built by developers who sell off-plan, with the majority of the properties going to investment firms or foreign individuals who buy them in cash.
Subsequently, the remaining apartments will be sold on the open market.
These properties are seen as less than ideal security by appraisers and lenders, as there are concerns that tenants are not looking after their properties as well as homeowners would.
What should they do?
Ben Fuller answers: In this situation, where the lender's appraiser has rejected the property due to its location or environment, you will need to move on to another lender who, crucially, uses a different appraiser or surveyor.
Many lenders will use the same independent appraiser in one area, so you may switch from, say, Barclays to Santander, only to find that the bank sends the same appraiser to value the property so the outcome doesn't change.
Our readers' valuation problem often crops up in certain areas of Manchester, Liverpool and Birmingham, where blocks of flats are bought by investors rather than owners.
The other problem to avoid is applying to another lender who rejects the application, then another, and so on, ultimately leaving you with multiple applications and 'footprints' on your credit file, which does not help your overall position .
To limit the risk of this happening, use a broker who can send the property details to lenders and appraisers 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 looking to make it their home.
I completely understand that this is a catch-22. If people cannot buy it as a home, the problem will continue.
There are a few considerations to take into account. First of all, will you have difficulty selling the property in the future?
Could this mean that you will lose more than your £2,000 booking fee in the long run if you go ahead with the purchase of this property?
Lenders' criteria and buyers' ideals change over time, so this is difficult to answer.
Experts: Chris Sykes, technical director at mortgage broker Private Finance (left) and Ben Fuller, employee at mortgage broker SPF Private Clients
We have had success in obtaining mortgages on such properties in the past, so you might want to see if your agent can run the property through a selection of lenders, to see if any of them would be willing to lend on the apartment – maybe you might find one that has already done a mortgage in the block.
You can also contact the developers to see if they have successfully gotten anyone into a home mortgage using the same lender.
Or you can ask to see what the real divide is between buy-to-let investors and homebuyers on the block.
If you wish to proceed with the purchase, apply with a lender that uses a different appraisal company than the one you initially used. Another appraiser may not share the same concerns.
Can they get the booking fee back?
Ben Fuller adds: I have come across clauses in the booking paperwork stating that if the buyer cannot get a mortgage they should be entitled to a refund of their booking fees.
Ask your attorney to review the paperwork to see if that is possible, in case a resolution cannot be found with another lender.
Be aware that even if you manage to secure a mortgage on your purchase, these difficulties may arise again when you try to sell.
However, if you have only tried one lender, you may have been out of luck and there may be several other lenders willing to consider your application.
Always engage a broker, because he or she knows which lenders are best to approach and how to best approach this.
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