As you can imagine, finding out you’ve lost your dream home, and potentially thousands of pounds you coughed up to take it off the market, is absolutely, utterly devastating.
My home-owning dreams were scuppered thanks to a little-known mortgage trap and, according to an industry expert, what happened to me is something they’re ‘seeing more frequently’ - and is more likely to affect first-time buyers living in big cities.
Back in March, I had an offer accepted on a flat miles better than anything I thought I could afford with my modest budget. For £154,000, this apparent bargain was walking distance from where I work, had huge windows, was double the size of the cramped flat I’m currently renting, had a bath with jacuzzi jets in it - truly the stuff that dreams are made of.
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I’d been told that the only thing I needed for the mortgage to be accepted was the property valuation to come back. This is when the mortgage lender researches a property to make sure they’ll be able to sell it themselves if it gets repossessed.
While knowing all sorts of things can derail a property purchase, I’ll admit I was quietly confident. I had even started getting very into interior design and earmarked the furniture I would buy - which made what happened next all the more devastating.
My mortgage lender rejected my application. Their reasoning: "There is not sufficient evidence to support owner occupied demand as sales for this type of property are expected to be limited to cash investment only."
At the time, I had little idea what this meant, and it was quickly followed up by advice from two different mortgage brokers (experts who advise on the best mortgage deals) that I would likely never be able to get a standard mortgage on this flat, and was best off walking away.
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I was dumbstruck. What had gone wrong? Is this something I could have avoided? And how many other people does this happen to?
'Far from rare'
To get answers, I spoke to industry expert Nicholas Mendes from mortgage broker John Charcol.
He said: “From what you have described, your experience is unfortunately not unique.
“It’s something we’re seeing more frequently, particularly with high-density, investor-led developments in major cities.
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“This usually applies to flats in large-scale new builds or converted schemes in places like Manchester, London, and Birmingham.”
Essentially, what had gone wrong was that the flat I tried to buy, and many others like it in city centres, were ‘designed more with investors in mind than people looking to make a home, and that tends to impact how they are valued by lenders’, according to Mendes.
He said: “While not an everyday occurrence, it is far from rare, especially in blocks where most sales are going to cash buyers, corporate landlords or specialist buy-to-let lenders.
“In these cases, lenders often feel the property lacks long-term owner-occupier appeal, which makes them cautious about lending, even when the applicant is financially sound.”
But shouldn’t the estate agent have known this would happen?
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After my initial mortgage application fell through, I was sent a list of four approved lenders for the development. When I called them, they all had crazy rules.
One of them only offered mortgages for landlords. Another said their maximum mortgage term was 11 months.
Mendes says the fact the estate agents were recommending these lenders ‘suggests the property was never likely to qualify for a standard residential mortgage’.
“Agents are typically working on behalf of the developer and may not be fully aware of how lenders view a particular block.
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“That said, when a buyer has been clear they are purchasing with a mortgage to live in the property, more caution should be shown.
“We have seen similar cases where buyers reserve a flat, only to find mainstream lenders will not lend on it due to concerns with the development itself.”
'Should ring alarm bells'
Initially, the estate agent told me my £2,000 reservation fee might be lost. They said the money - which would have been part of my deposit had the sale gone through - had been sent straight to the developers who owned the block of flats, and they couldn’t guarantee they could get it back.
This is not news anyone wants to hear. I’d had to tell my girlfriend the summer holiday to Greece we’d planned was off the cards.
Luckily, when I contacted the estate agent the following week to tell them I was writing this piece, they agreed to refund the reservation fee. We have decided not to name the agent involved.
In an email, they said they 'sincerely regret' that aspects of the property 'were not made known to you at the outset'.
They continued: "We have put in steps to ensure only cash buyers can proceed in future as we absolutely do not want a repeat of this scenario."
If, like me, you’re a first-time buyer looking for a city centre flat - there are some questions you should ask your estate agent and red flags to look out for.
Mendes said: “Phrases such as 'guaranteed rental yield' or a development that is only supported by a handful of niche lenders should ring alarm bells. If your broker raises concerns about a lack of mainstream lending, it is worth listening.
“Difficulty getting straightforward answers from the agent about owner-occupier levels is often another sign the property may not be suitable for residential buyers.”
And if you find yourself out of pocket when your mortgage falls through and it isn’t your fault?
“If your mortgage is declined because of the property and not your financial position, it is entirely reasonable to request a refund of your reservation fee.
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“If lending restrictions were not clearly disclosed or the issue explained at the outset, you may have grounds for a formal complaint.
“If the developer or agent is unwilling to engage, contacting Trading Standards would be a next step.”
One thing in particular struck me about the unfairness of this situation. City-centre flats in large developments are exactly the sort of properties many first-time buyers want. The way the housing market works effectively reserves them for landlords and investors, shutting us out and making it that much harder to get on the housing ladder.
Mendes agrees: “City-centre flats should be a natural fit for first-time buyers, but when lenders pull back from investor-heavy developments - which is understandable given how they assess risk and the impact on resale security in the event of repossession - those homes become effectively inaccessible to anyone needing a residential mortgage.
“It’s a frustrating situation where the housing exists but isn’t truly available to the people who need it most.”
Simon Fearn