Mortgage with a Restrictive Covenant: What Buyers Need to Know
Buying a property is an exciting step, but if the property has a restrictive covenant, it could complicate things.
Restrictive covenants can limit how a property is used or developed, which may concern some mortgage lenders.
At Kerr & Watson, we specialise in providing personalised mortgage and protection advice, ensuring you can confidently move forward with your property purchase, and potentially, even if it comes with a restrictive covenant.
What Is a Restrictive Covenant?
A restrictive covenant is a legally binding stipulation attached to the property, not the owner, that limits what can or cannot be done with the property or land.
These covenants are often put in place to maintain a certain aesthetic or function in a neighbourhood, and they pass on to future owners whenever the property is sold.
Examples of restrictive covenants include prohibitions on altering the property without permission, building extensions, running businesses from home, or even parking specific types of vehicles on the land.
Positive vs. Restrictive Covenants
Covenants fall into two categories: positive and restrictive (negative). While positive covenants require the homeowner to take a certain action, such as maintaining a boundary fence, restrictive covenants prevent the owner from certain actions, such as building an extension without permission. It’s the restrictive covenants that can make getting a mortgage more complicated.
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How Restrictive Covenants Affect Mortgage Applications
When applying for a mortgage, lenders will assess the impact of a restrictive covenant on the property.
Their main concern is whether the covenant will affect the property’s resale value, as they want to ensure the property retains its worth should you default on the mortgage.
Here are some key ways restrictive covenants can influence your mortgage application:
Limitations on Property Use
If a covenant restricts major alterations or extensions, it can limit how the property can be developed, which might reduce its future value. Lenders see this as a risk because it could make selling the property more difficult with one of these in place.
Impact on Resale Value
Some covenants limit what can be done with the property in ways that could affect its marketability. If a future buyer is unwilling to comply with these restrictions, the property may take longer to sell or sell at a lower price.
Higher Risk for Lenders
Due to these potential complications, properties with restrictive covenants may be considered higher risk than standard properties without such restrictions. This could lead to lenders charging higher interest rates, requesting a larger deposit, or limiting the number of available mortgage products.
At Kerr & Watson, we have access to a variety of lenders, including those who specialise in properties with restrictive covenants. We can help you look for the right lender who may be willing to accept such applications.
Can You Get a Mortgage with a Restrictive Covenant?
The good news is that getting a mortgage with a restrictive covenant is possible, but it depends on the specifics of the covenant and the lender’s criteria.
Some lenders may be more cautious, especially if the covenant significantly limits property development or use.
However, some specialist lenders may be more flexible and may be more willing to work with properties that have such restrictions than standard high street lenders. This is not always the case though so whole of market mortgage advice is recommended.
At Kerr & Watson, our experienced advisors will evaluate your specific situation, identify any potential red flags with the property, and guide you to the best lenders for your individual situation.
How to Explore Restrictive Covenants with a Mortgage Lender
When purchasing a property with a restrictive covenant, the best approach is to work closely with both your mortgage broker and conveyancer.
Your conveyancer will thoroughly review the covenant and explain its implications for you as a homeowner.
Meanwhile, a mortgage broker like Kerr & Watson will look for the right lender who can offer a consider the restrictions.
Not all mortgage lenders are willing to take on properties with restrictive covenants. However, Kerr & Watson can explore the market for you to save you time.
Conclusion
While restrictive covenants can add complexity to the mortgage application process, they don’t always have to be a barrier to owning your desired property.
With expert guidance from Kerr & Watson, we can help look for a lender who understands these restrictions.
Contact Kerr & Watson today for professional mortgage advice.
