Entering the property market is a good way to build your personal wealth, one that isn’t subject to the same risks as the stock market. You’ll have more control over your investment, and you’ll be able to develop a set of profitable skills to boot. These skills can be put to use in lightly refurbishing a property for rent or resale, adding a little extra value to a property for a profit. For a more substantial profit, however, it might be better to look for properties with hidden potential, one that can be realised with a great deal of hard work. Such properties are often uninhabitable, and while they may certainly prove to be profitable later on down the line, it can be difficult to find a lender willing to put their money behind such a project. This raises the question – how can you finance uninhabitable property purchases?

In this article, we will answer this question, cover the methods available for funding the purchase of uninhabitable properties, and break down the factors that make a property uninhabitable.

What is an uninhabitable property?

An uninhabitable property is one that is typically in need of a great deal of work. Whereas some properties need a little bit of care before going to market, such as the installation of more modern furnishings or minor repair work, an uninhabitable property goes well beyond these needs. Oftentimes, an uninhabitable property will lack one or more of the most basic facilities, such as a bathroom, kitchen, or internal heating. This can be considered one of the better cases for an uninhabitable property. Some uninhabitable properties might be caked in mould or infested with insects, while others still might not even have four walls. Naturally, such properties cannot go to market in these states, and so a great deal of work is required to dredge up their deeply hidden potential.

Why do lenders typically avoid uninhabitable properties?

Despite their condition, uninhabitable properties often have great potential below the surface. Once realised, this potential can make what might seem a financial burden into a profitable venture, perhaps even more so than a property already fit for the market. While it may then seem that lenders ought to jump at such a property, they typically avoid lending to projects involving uninhabitable property. This is for two main reasons: the amount of work needed to make the property fit for the market, and the near-impossibility of a quick sale before this work is done. If, for whatever reason, the lender would require a quick sale to recover the debt, finding a buyer will be extremely difficult.

Why might a property be considered uninhabitable?

Uninhabitable properties are primarily classified as properties that lack basic facilities people need in order to live in a building. This includes a functional bathroom, a basic kitchen sporting at least a cooker and sink, electricity, running water, central heating, and structural security. The property should also be watertight, with a roof in good condition and no obvious areas where water can enter. Lastly, the property should be kept reasonably clean, free from any mould growths or insect infestations.

A property that fails to meet these specifications will find it difficult to find a lender willing to fund the purchase. However, it is not impossible. There are several methods available to a property buyer, though traditional forms of finance, such as bank loans, are not likely to be the most accessible options.

How to finance an uninhabitable property

When purchasing uninhabitable property, borrowers have a range of options for raising finance. Perhaps the best place to start is with a traditional mortgage, depending on your vision for the property. If you aim to develop the property into a liveable dwelling, and you have a thorough plan of how to do so and the money it should bring in, you may find a bank willing to lend you a mortgage. However, while this is a possibility, it isn’t the most likely of scenarios. For reasons we have mentioned earlier, most banks and other traditional lenders will be very cautious when lending to an uninhabitable property, making acquiring a mortgage difficult, though still on the table.

If you are unable to secure a mortgage to purchase an uninhabitable property, you may be better off turning to a proven alternative – bridging loans. These loans are extremely useful in the property development industry for several reasons, and may be able to help you fund your uninhabitable property purchase.

Using a bridging loan to finance uninhabitable property

Bridging loans are an excellent tool for funding the purchase of any property, including uninhabitable property. Bridging loans are a form of secured loan, meaning they require physical assets to be used as collateral. Many property buyers will use the target property as collateral, but with uninhabitable property, this is not likely to be an option for the aforementioned reasons. However, you may be able to use another property, such as your current home or another in your portfolio. In doing so, the risk of lending to an uninhabitable property is removed, making lenders much more likely to approve your application. Compared to traditional forms of finance, this makes bridging loans an extremely effective and reliable option.

As bridging loan lenders are primarily concerned with the value of the proposed collateral asset, the application process is relatively quick and easy. Your income and credit score, while still notable, aren’t a priority for bridging loans, provided your collateral asset is of sufficient value. The requirement of collateral has the added benefit of making the application process quick, meaning you’ll get your cash quicker compared to other loans. This is a major benefit when purchasing uninhabitable property, as they are often for sale at auction.

Wrapping up

Finding lenders willing to support the purchase of uninhabitable property is difficult, but not impossible. Traditional forms of finance, such as a mortgage, will be quite difficult to obtain, requiring you to make a strong case when applying. However, bridging loans offer a relatively easy means of financing the purchase of uninhabitable property, given the focus on the value of collateral. These loans can be used to raise a great deal of finance quickly and easily, though they do expose the borrower to a bit more risk than unsecured loans. As such, it is a good idea to obtain professional advice before taking action.