The property-buying process is one of the most stressful things you can go through in life. It can also be full of complexity and potential pitfalls. The key is to get the very best advice and ensure you are aware of the details of everything you are considering. A great example of this is restrictive covenants, which can have a huge effect on the value of a property and how easy it is to buy and sell.
What is a restrictive covenant?
Restrictive covenants are binding conditions written into property deeds or contracts which determine what a property owner can or cannot do with the property or the land. They are usually highlighted when a property conveyancer checks the legal title on a property during the purchasing process. Restrictive covenants are usually imposed by the landowner and hence are common with new-build developments, but can also be applied to older properties. Restrictive covenants are often imposed by housing developers to prevent practices which could negatively impact on a neighbourhood, and often are the result of restrictions agreed to in the process of applying for planning permission. They are also common in areas located close to areas of outstanding natural beauty.
It is important to note that restrictive covenants are applied to the land a property stands on, these are not transferred with ownership and are applicable to all future purchases of a property. These will apply to you once property deeds are signed over to you, and from that point you will be responsible for adhering to them and accountable for any breaches. It is possible to have restrictive covenants removed from property deeds, but this can be costly and time-consuming and is rarely a realistic option while applying for a mortgage at the same time.
What are common examples of restrictive covenants?
Common examples of restrictive covenants include:
- Making significant structural alterations or modifications to a home – such as building an extension or having a loft conversion done.
- Preventing other structures being erected on the land – such as additional garages, summer houses or conservatories
- Preventing trades or businesses being operated from the land – to ensure it remains a residential area and not a commercial area.
These kinds of restrictions could significantly impact the plans you have for a property once you buy it, however, there are other types of restrictive covenants which are not considered to be ‘deal-breakers’, but which you still need to be aware of. These include having to adhere to types of garden or grounds maintenance, not installing satellite dishes, not keeping livestock or certain types of animal on the property and restrictions on the type of vehicle which can be parked on a property.
How can a restrictive covenant impact on me buying a property?
A restrictive covenant can negatively affect the value of a property because it may become harder to sell. Depending on the type of restrictive covenant, a buyer might be put-off by effectively having restrictions imposed on what they can do in their own home. If you are the seller, then a reduced value on the home can put you in negative equity or may result in you not being able to sell the property at all. This all means that mortgage lenders are very cautious about lending money for a property bound by a restrictive covenant in the first place.
So it is harder to get a mortgage for a property with a restrictive covenant, but not impossible. A lender will require in-depth information on the deeds and the restrictions because the re-sale appeal of the property is a major factor in the lender’s decision. If they lend you the money for the property, they want to know that you can later sell it yourselves, but also, if you happened to default on the mortgage and can’t pay it, the lender will want to sell the property quickly and without hassle, so a property covered by a restrictive covenant represents a much higher risk to the lender.
What should I do if I want to buy a property with a restrictive covenant?
- Find a specialist conveyancer who can look at the deeds and offer you advice on how they could affect your mortgage application.
- Some lenders will specialise in mortgages designed around restrictive covenants, so do some research and find one.
- Make sure you understand your potential legal obligations relating to the restrictive covenants, your conveyancer can help you with this.
- Carefully consider the cost and practical implications of the restrictive covenants and whether, on balance, the positives of living in the property outweigh the negatives.
Ultimately, you will be able to get a mortgage on a property bound by restrictive covenants, but there are more limited options. Depending on the type of restriction, you may need to opt for a specialist mortgage which includes higher fees and interest rates and may include indemnity insurance also. This is how the lender offsets the risk. You should also consider that if you breach a restrictive covenant the courts can grant an injunction forcing you to pay penalty fines, or they may just ask you to remove anything you have altered or added to the property.
If you are thinking of buying a property with a restrictive covenant, contact our specialist conveyancing experts at Ison Harrison today and we can talk to you about your options.