‘Unmortgageable’ homes being snapped up by Scots investors

Thatched cottages, high rise apartments, homes too close to commercial premises or homes without workable kitchens or bathrooms may all be considered unmortgageable by banks’ automated processes.

Despite this a large proportion of savvy Scottish buyers are still determined to secure these types of properties, according to research from Together.

Among Scottish adults who have purchased or strongly considered, 47% said the property was more affordable and over half (51%) said it was better value for money than buying a “traditional home”.

Almost a third (33%) of Scottish buyers were looking for a renovation or restoration project, while 27% saw an opportunity to add value and sell on the property later for profit.

In fact, just under a third of those who, within the past 5 years, have either purchased, attempted to purchase, or seriously considered purchasing an “unmortgageable” property were motivated by the risk-to-reward ratio, with 31% of Scottish adults admitting they knew it would be difficult but worth it.

And 31% said the potential rewards outweighed the risks, while a fifth (20%) said they were willing to take a chance that others weren’t. And just 10% admitted they underestimated the challenge involved.

One of those who saw the value in going after Scotland run-down ramshackle houses is

Laurie Duncan.

The owner, co-founder and director of Real Property Scotland initially wanted to get into the buy to let market as a way to make some “passive” income - today his company has a turnover of more than £9 million and around 30 staff, as he helps other people invest in the kinds of properties that many banks see as unmortgageable.

“Unmortgageable can mean a lot of different things” he says. “Typically it is non-standard properties, properties that are uninhabitable, so no kitchen, no bathroom, no water, no utilities, all that kind of stuff is deemed normally as problematic. That, for a buyer, is great as it lets us get a quick settlement.

“Everything we buy is off market, it’s discounted, so clients make money when they buy. There are always risks like any investment - generally it’s something like not realising there is a problem with renovation work that leads to more costs, and with these kinds of properties it can be hard to know what all of the problems are until you get into the guts of the deal.”

The investment opportunity within these properties is also a strong motivation. A quarter (24%) of Scottish buyers cite the lower purchase price as the biggest attraction. Another attraction is the rental income potential for these properties, at 18%.

“People like being able to see and feel their investment and to know that if things go south they can sell their property and get their money back,” said Laurie.

“It’s definitely very popular for people looking to build a secondary income stream - very few clients give up on the day job, they are instead looking for something that brings in a bit of extra money that they can save.

“Demand for rental has never been higher - every time we put a rental property on the market it is snapped up.

“Most of the time we’re not investing in the big city centres - these unmortgageable properties tend to be more in the rural areas across Scotland and there’s real opportunities there.”

Ryan Etchells, Chief Commercial Officer at Together, said: "One of the less visible challenges facing the UK property market is the sheer number of properties that mainstream lenders are reluctant to finance.

"That means a significant number of homes are effectively out of reach for ordinary buyers. While they don't feature in official housing shortage figures, they represent part of the wider supply problem and highlight the scale of investment needed to bring more homes back into the ‘mortgageable’ market.

"The good news is that there is a strong appetite among buyers who are prepared to take on these properties and invest in improvements. However, many are still unaware of the alternative finance options available to them. Greater awareness would help reduce declined applications and make it easier for people to unlock the potential of homes that traditional lenders often turn away from."