Mortgage lender refuses remortgage application because the road's busy and there's a restaurant next door

Published 02nd Aug 2010

Abbey wouldn't give another loan on one London home, even though it had previously approved the same property and the same owner


Mortgage lenders are becoming so strict with their criteria that they are denying loans to customers despite having previously agreed loans on their properties. In one case, a couple were denied a mortgage on their London home even though they had been granted a loan on it from the same lender four years earlier.

Technical editor Andrew Dick and his partner Uli Schade bought their two-bedroom house in east London in 2004, with a mortgage from Bank of Scotland. Over the next six years they remortgaged twice to take advantage of deals from Abbey and Cheltenham & Gloucester. Last month, with the C&G deal ending, they instructed their broker, Stuart Inman from Hearnden Associates, to look for the best rate available. Inman recommended another Abbey mortgage.

Abbey, owned by Santander, appointed a third-party surveyor to value the property – the same company it had used when providing a mortgage to Dick and Schade in 2006, before the credit crunch. This time, the surveyor concluded: "It is not possible to recommend the property as a suitable security for a mortgage because it does not meet the Lenders mortgage criteria due to being located on a very busy road, adjacent to a Chinese restaurant and very close to a large public house." Abbey refused Dick and Schade a mortgage based on the surveyor's appraisal, even though none of the circumstances mentioned in the surveyor's report had changed since the last time Abbey granted them a loan.

When questioned, Abbey said it had declined the application "based on the findings of an independent valuation of the property conducted by a third-party firm, rather than any specific change in lending criteria". Yet it is clear from documentation that the third-party surveyor said the property did not meet Abbey's lending criteria.

Dick, Schade and their broker were shocked. "We knew that living next to a Chinese takeaway or on a main road could affect the sale value, but we've never had a problem getting a mortgage before," said Dick. "Does that mean no property on a busy road is suitable for investment? Does the surveyor understand that in London there is always a busy road, pubs, shops and takeaways in close proximity? We've had three mortgages, including one from Abbey, so there is nothing wrong with the property or location. Our broker said he had to check the calendar to make sure it wasn't April Fools' Day."

Abbey said: "If the valuer deems that one or more factors about the property at the present time (and obviously factors may have changed over time) could adversely affect a property's marketability and value in the future (for example, the combination of factors cited in this case), as a responsible lender we may choose to decline an application on the basis of these findings."

Broker Stuart Inman sees it differently: "When I first heard Abbey had turned down the loan because the house is next door to a restaurant, I thought it was a joke. In 15 years of arranging mortgages I've never experienced this. The surveyor told me Abbey had made a change to its criteria so that properties adjacent to restaurants or anything that could have a detrimental effect on the value will no longer qualify for a loan. Abbey need to put something on their website. They've wasted their own money on the survey, not to mention the time and hassle for the rest of us."

Melanie Bien of Savills said that in this case, even if Abbey is not admitting to a change in its lending criteria, it might be becoming more sensitive to any deviation from the norm in a survey. "It does suggest that Abbey are being more strict now," she added. "When it comes to the valuations and credit-scoring, you find lenders are being a bit pickier. Lenders prefer vanilla cases, such as three-bedroom semi-detached houses."

The couple instructed Inman to check the next best rate, from Northern Rock, and he contacted the bank in advance to check the same thing wouldn't happen. Northern Rock's surveyors wouldn't give a definite decision. "They admitted it is a grey area, so we chose our third-best offer instead," said Inman. This was from Woolwich, which uses an office-based valuation system and approved a loan.

If loans are repeatedly turned down, it can lead to people's credit history being damaged and further applications being denied. A spokesman for credit rating agency Experian said: "If you applied for one or two loans and were turned down, it might be all right; but if you apply for several mortgages in a short space of time and are turned down by them all, it will create problems for your credit rating."

LowerMyBills.co.uk allows you to check in advance what lending you will get accepted for, although this will be based on finances rather than whether you have a takeaway next door.

The message for mortgage applicants seems to be that they are by no means certain to obtain the loan they require, even if they have a healthy repayment record and sound credit rating.

"We were very concerned," Dick said. "We enjoy our home and love the area, and to be told our property was effectively unmortgageable was shocking."

Source: ' Observer '

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