When you find a property that you fall in love with, many people will do anything in their power to make sure they can buy that house, regardless of the costs and risks which may be involved. It can make even the most rational people act irrational.
One of the biggest risks people often take on, is what I am going to call ‘niche mortgage risk’. This is the risk you take when you buy a property that is extremely difficult to obtain a mortgage against due to a factor such as it’s construction, location or age. The house buying process will usually lead you down a certain path, first you fall in love with it, then you go to apply for a mortgage, then you find out that getting a mortgage is going to be tricky. For some people this is too late, and nothing will stop their quest to buy it. The next step may be that you find the one single mortgage lender in the country who is willing to lend you the money against that type of property, and you either feel like you are extremely lucky or that it is fate.
In reality, this is when the alarm bells should start to ring. You need to ask yourself why do most other lenders not like that type of property? What happens if in the future when I want to remortgage and my existing lender doesn’t have any competitive interest rates? What about when I try and sell the property and potential buyers meet the same issues as I did at outset?
If you are going to stay in the property for the rest of your life, some of these issues are not so important, but should still be considered. If you do understand the risks and are happy to proceed, then maybe you can use them to your advantage and reflect the risks in the size of your offer. It is likely the vendors are fully aware of the issues that buyers face. Many sellers of these types of properties will have had their houses on the market for a very long time, possibly having already had several offers fall through and so they may be happy to accept a low offer. You still need to appreciate though, that one day the shoe will be on the other foot, so that ‘lower price’ may not in fact turn out to be a bargain.
Jason Hinde FPFS, Cert SMP – Chartered Financial Planner