Can I buy a property with Restrictive Covenants using a mortgage?
Mortgages on a property with Restrictive Covenants (including Section 106) can be difficult. Historically Mortgage Lenders would direct their surveyors and solicitors to make sure a property did not have any covenants that would restrict re-saleability as this is the asset they are lending against, and in the case of non-payment of the mortgage they would want to realise the proceeds from a quick sale.
As the country adapts to a housing shortage many new developments have been required to include an element of social and affordability housing, and the builders have had to agree to certain uses of the land to push the planning permissions through hence the growth in Restrictive Covenants for the end purchaser.
The most common type of Restrictive Covenants are those that insist social / affordable housing stock levels are maintained i.e. must always be sold to the category of the population it was originally intended.
Once the nature of the Restrictive Covenant is known, usually disclosed by the Selling Agent, it is wise to check the acceptance back with your Mortgage Broker before you get too far down the track. Also whilst you might be willing to take on the restrictions you need to think long term to potential future buyers, when you come to sell, as they might be put off.
What type of Restrictive Covenants are acceptable to Mortgage Lenders?
In short broad Restrictive Covenants that do not unduly limit their exit in the case of repossession. For example:
• Salary restrictions (typically imposed by Affordable Housing and Discounted Housing Schemes).
• Purchase price ceilings.
• Local living restrictions (typically Local Ownership Schemes).
It could also be a combination of the above.
There are also contracts that effectively have release clauses of the Restrictive Covenants after a period of time. The Mortgage Lender may take a view on this if the period is not too long say 3 months after possession.
Some restrictions only apply to the first transaction (i.e. the initial purchase transaction) and is subsequently removed for any future transactions.
In fact, it can get very complicated so make sure you ask your Mortgage Broker to recommend the services of a large and reputable solicitor.
Responsibility to advise Restrictive Covenants to your Mortgage Lender
It is Mortgage Brokers duty to disclose the Restrictive Covenants on mortgage application so that the lender can prime their surveyor to make their assessment on this basis. So at the first opportunity you should brief your Mortgage Broker and provide any documentation on the matter.
Niche Advice is a Mortgage Broker, not a Solicitor or Mortgage Lender, we should, in most cases, be able to help determine whether the Restrictive Covenants are going to be acceptable to the Mortgage Lenders ahead of full application which may save you time and money.
Niche Advice arranges all types of mortgages including those on properties with Restrictive Covenants.