Getting a Mortgage for Property Covenants Explained

If you’re thinking about getting a mortgage to buy a property with a covenant, you might feel a bit unsure.

Are these restrictions a dealbreaker? How will they affect your mortgage options? Don’t worry, you’re in the right place. 

We’re going to break down what covenants are, how they can impact your mortgage, and whether buying a property with one is worth it. 

By the end, you’ll know exactly what to expect and how to make the right decision for you.

What is a Covenant on a Property?

A deed of covenant is a promise you make when buying a property. These are legal agreements written into the title deeds of the home you’re planning to buy.

They might say you need to keep a shared garden well-maintained or that you can’t put a garish pink door on the front of your Victorian terrace (probably for the best). 

It’s a promise that stays with the property, not the person, so whoever owns the property next also has to follow it.

There are two main types of covenants: positive and restrictive. 

A positive covenant is something you need to do, like maintaining the property or paying for a boundary fence. 

A restrictive covenant, on the other hand, is all about things you’re not allowed to do. We’ll cover those shortly.

Positive Covenants

Positive covenants are basically agreements to do something. These might include maintaining a garden wall, paying a shared cost for keeping communal areas tidy, or making sure the building’s paint job stays fresh (you don’t want to let the neighbours down!). 

In freehold properties, positive covenants can help keep everything looking nice and ensure shared spaces are well cared for.

Examples of Positive Covenants:

• Spending money on improving the property.
• Repairing or maintaining shared structures.
• Building or maintaining boundary fences.
• Paying for communal area upkeep.

Restrictive Covenants

Restrictive covenants are rules about what you can’t do. They might stop you from making changes to the property, like extensions or setting up a business from home. 

For example, if you dream of turning your garage into a coffee shop, a restrictive covenant might put an end to that.

Examples of Restrictive Covenants:

• No alterations to the property without consent.
• Not parking certain vehicles on the land.
• No satellite dishes allowed.
• No running certain businesses from the property.
• Limits on the type of animals you can keep.
• Restrictions on where you can build extensions.

Can You Get a Mortgage with a Restrictive Covenant?

Restrictive covenants can make getting a mortgage a bit trickier. Lenders might be a bit wary, especially if the covenant really limits what you can do with the property. 

This is because it could affect the property’s value or make it harder to sell later on. 

No lender wants to finance a property that’s stuck in a time warp.

So, how can you get around this? Well, it depends on the specifics of the covenant. 

Lenders will look at each case individually, and restrictive covenants might mean tougher terms, like a bigger deposit or higher interest rates.

Here are some tips to improve your chances:

• Find a Specialist Broker. Some brokers know the ins and outs of properties with covenants. They can help you find lenders who are more flexible.
• Save Up a Bigger Deposit. A larger deposit means less risk for the lender. So, if you can put down more cash upfront, they might be more willing to give you a mortgage.
• Look for Specialist Lenders. There are lenders who deal with properties that have unusual conditions. They might offer mortgages that suit your situation.
• Get Legal Indemnity Insurance. This can protect you and the lender from any potential issues related to the covenant.
• Talk to a Conveyancer Early. They can explain the covenant and help you figure out what lenders will accept. They might even be able to negotiate changes to the covenant.
• Have a Clear Plan. If the covenant limits what you can do with the property, be ready to show the lender how you plan to use it without breaking the rules.

It might not be a walk in the park, but with the right approach, you can definitely get the mortgage you need, even if the property has a restrictive covenant.

Should You Buy a House with a Restrictive Covenant?

Ultimately, it depends on your plans for the home.

If the restrictions don’t affect you or if you’re okay with following the rules, it could be fine. But if you want complete freedom to make changes, a restrictive covenant might be a problem.

Let’s look at the pros and cons:

Pros:

• Often helps maintain the character of a neighbourhood.
• Might not affect you if your plans align with the covenant.
• Can ensure shared areas are maintained properly.

Cons:

• Limits on making alterations or improvements.
• Harder to get a mortgage or might come with less favourable terms.
• Potential legal headaches if you breach the covenant.

Always get the lowdown from your conveyancer and make sure you fully understand what you’re signing up for.

Can You Buy Land with a Covenant?

Buying land with a covenant is possible, but it has challenges. 

A restrictive covenant could limit what you can build or how you use the land. 

Most mortgage lenders want to see building consent before approving a mortgage on land, so if there’s a restriction on building, you might struggle to get financing. It’s best to get planning permission first to make sure the land meets your needs.

Mortgage Lenders Accepting Restrictive Covenants

If you’re buying a property with restrictive covenants, your choice of lenders might be limited. 

Some lenders are more comfortable with properties with covenants, while others are wary of the risks involved. 

Properties with restrictive covenants are often seen as higher risk, which means mortgages can be harder to come by, and lenders might charge higher rates or require larger deposits.

The good news is that there are specialist lenders who design mortgages for properties with restrictive covenants. A mortgage could still be possible if you meet the rest of the lender’s criteria. 

Speaking with a mortgage broker who knows which lenders accept restrictive covenants is a smart move – they can help direct you to the most suitable options.

What Happens if You Ignore a Restrictive Covenant?

Things get a bit serious…

Breaching a covenant can lead to some pretty unpleasant consequences. Depending on what’s breached, you might face fines, or even be asked to undo whatever it is you’ve done. 

Imagine having to tear down that fancy new conservatory you just built because you didn’t get the required permission – ouch.

In some cases, the person with the benefit of the covenant can take legal action, including seeking an injunction to prevent further breaches or even claim damages. 

The best way to avoid this kind of drama is to understand all the covenants on a property before buying. Your solicitor is your best friend here, making sure you’re not caught off guard.

Changing or Removing a Covenant Attached To a Property

If you’re not eligible for an indemnity policy or simply want to get rid of the restrictive covenant, you might be able to remove it – but it’s not easy. 

The process involves contacting the person with the benefit of the covenant to request retrospective consent for the changes you wish to make. 

If that doesn’t work, you can apply to the Upper Tribunal (Lands Chamber) to remove or modify the covenant, but there’s no guarantee of success, and it could be costly. 

In some cases, removing a restrictive covenant can increase the property’s value, which means the seller might increase the price.

The Bottom Line

Buying a property is already a big deal, and covenants are like a little extra twist in the tale. Positive covenants might even be helpful – after all, they often ensure everyone plays nice and keeps things in good nick. 

But restrictive covenants can be a real hurdle if you want to make changes or use the property in non-traditional ways. 

At the end of the day, understanding the specific deed of covenant meaning attached to a property helps you decide if it’s the right fit for you. 

If you’re still on the fence, a good mortgage broker can help you understand the risks and, if needed, help you work around them.

Get in touch with us and we’ll match you with a qualified mortgage broker experience in mortgage for properties with a covenant.