We are having difficulties selling our house that has a self-contained granny flat. The potential purchasers (first-time buyers with mortgage approval in principle) cannot get a mortgage on our house because the mortgage provider considers that the house is a commercial property due to the presence of the granny flat.
The granny flat (1990, converted garage) has full planning permission and a compliance certificate. The planning permission stipulated that the granny flat was to be associated with the existing dwelling house; that the total property was to comprise one family unit only; and that no commercial use of any kind would be permitted. Despite this, the mortgage provider insists that the property is a commercial letting proposition and will not grant approval.
The potential purchasers have got similar feedback and responses from a range of mortgage providers.
Is this issue common with properties that have granny flats? Is there anything that we can do to get this sale over the line? Or is our house unsalable to anyone who needs a mortgage?
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Ed Carey writes: On the face of it, this seems an unusual case – such properties are frequently sold without problems. I think there are two separate issues at play; firstly, planning compliance and secondly the bank's view of its security in the unlikely event it needs to repossess the house, and how easy or difficult that might be. You don't state the extent of the flat, so I'm presuming it's a single bedroom arrangement under the same roof as the house. I'm also presuming that there's nothing else in the transaction that could be causing difficulty for the bank, such as the purchasers indicating they will rent the flat to improve their borrowing power.
To deal with the planning aspect first. Essentially, a solicitor acting for the purchaser of a residential property must certify title back to the bank taking the mortgage on that property. That solicitor needs to confirm that there is good marketable title on that property in the event it is being sold on either by that buyer again, or by the bank acting as mortgagee in possession (in the event they must repossess). Your property would seem to be fully compliant with planning permission and, therefore, in all likelihood presents no title difficulty for the purchaser’s solicitor or the bank.
Where I think your purchasers are encountering the difficulty is at underwriting. The bank is aware that the property includes a granny flat, possibly with letting potential. I suspect the bank is taking one of two views; if this is a granny flat, and “granny” is living in the flat, it will be very difficult for them to take possession of the property – it just wouldn’t look good. Alternatively, something is suggesting to the bank that this is a rentable unit (irrespective of the planning permission) and the property, therefore, falls outside normal underwriting criteria for a home loan. There are other property insurance implications on non-standard homes.
A common issue encountered by agents relates to non-compliant attic conversions used as bedrooms. If these conversions don’t meet building regulation compliance, they can’t be described as bedrooms. Therefore, you will see such rooms described as storage rooms (even though they may have beds, lockers and wardrobes). My point is that it is very important how a property is presented and described to the market.
In this case, make sure there is no suggestion of lettable income, or second family occupation. I’m not suggesting that information be withheld from the marketing material, just that it’s made clear this is a single-family occupancy home. But I do think that such “granny flats” are probably better or more correctly described as bedrooms: or, if it is a conversion of a detached garage, it is probably better described as a garage as per the original planning permission. I have also encountered situations whereby it was easier to undo some works to a property than to go down the route of seeking planning retention. This may not be as drastic as it sounds. For example, if there is a kitchenette, by removing that kitchenette it is no longer a flat, it is just an extra room.
I think, in your case, I would reassess the marketing and property description. If you do need to undo some of the work you may not significantly affect the price, particularly in today’s market. You may not even need to do this; by restating the use of the rooms you may also solve the problem. If all else fails, any purchaser may need to look at a commercial loan on the property, but I really do not see this as necessary. Higher interest rates will possibly be applied and the bank will appoint its own solicitor, for which the buyers will need to cover the cost. But, from your point of view, I think a relaunch as described above, and additional clarity of your purchaser’s borrowing arrangements, should solve the problem.
Ed Carey is a chartered residential agency surveyor and member of the Society of Chartered Surveyors Ireland, scsi.ie
