Avoid being dragged through the mill
>By Harvey Jones
>Published: April 21 2006 12:19 | Last updated: April 21 2006 12:19
>>

For many people, living in a purpose-built flat or four-bedroom executive box is not enough. They want something more spectacular, maybe a converted mill, barn, chapel, windmill or even a lighthouse.

But getting a mortgage on such a building isn't always straightforward. Lenders often shun properties that are out of the ordinary, says Melanie Bien, associate director of mortgage brokers Savills Private Finance. "They worry about resale value. If you default on your loan and the lender has to repossess, it is much easier to sell a three-bed semi than a converted lighthouse."

Another problem is that character properties have often fallen into disrepair, or need a small fortune to convert them to modern family living, which means borrowers struggle to raise enough money on a standard valuation.

Larger lenders can be most reluctant of all. "They deal in higher volumes and prefer more straightforward cases. If an application doesn't tick all the boxes, they are more likely to turn it down," Bien says.

Barclays, Halifax and NatWest are among those lenders that don't automatically rule out weird and wonderful properties, provided they are structurally sound and have good "resaleability", but these criteria are vague, and the ultimate decision rests in the hands of their local valuer.

If your application is rejected, don't despair, as many local and regional building societies specialise in lending on unusual properties.

Kent Reliance building society, which lends in England and Wales, has arranged mortgages on converted barns, chapels, castles, windmills, oasthouses, dovecotes and even Martello Towers – stone fortresses built to protect the coastline during the Napoleonic Wars.

"If the buyer can get insurance, there's usually no problem," says deputy chief executive Rob Proctor. "We don't even insist they have a full structural survey, although we tell them it is a very good idea."

Kent Reliance is one of the few lenders to offer mortgages on properties with agricultural restrictions, which can only be sold to farm workers or their families.

Skipton Building Society also aims to be flexible, lending on everything from multi-million pound London houses and country estates to derelict, uninhabitable houses with no water or electricity, although it draws the line at converted windmills.

Norwich Peterborough building society is keen to lend on unusual conversions, particularly those using innovative eco-friendly materials, says group product manager Gary Lacey. "Village schools convert well because they already have electricity, gas and water. Deconsecrated churches and chapels can make stunning homes, so can water towers, shops and warehouses."

The Ecology building society targets people looking to "rescue, renovate and recycle" derelict property, says marketing manager Jenny Barton. "We often lend on property turned down by mainstream lenders and encourage borrowers to use solar power and wind turbines."

Ecology has funded log cabins, hydraulic pumping stations and earth-sheltered dwellings. "One of our most tasteful conversions was a signal box near Huddersfield," Barton says.

But mainstream lenders are also slowly becoming more flexible, notably Lloyds TSB, which has arranged residential mortgages for converted dairy farms, cider mills, sugar mills, mental asylums and cowsheds.

HSBC is one of a handful that will lend on flats in former council tower blocks. Most lenders shy away from this type of property, fearing they will be badly maintained and hard to sell on.

Some of the country's finest buildings pose the biggest problems, says Paul Williams, manager at Towry Law Mortgages. "Grade 1 listed buildings can be expensive to refurbish because they have to be in style and you must use specialist workmen. If you can't afford the upkeep, the value of your property will decline, and that worries lenders."

Swanky city properties and plush country mansions can also prove troublesome. "One large loan can unbalance a lender's books. Most would rather have lots of little loans to limit the damage if one defaults. Above £2m, your choice of lender is severely limited."

Williams says Bank of Scotland, C&G and Northern Rock have proved helpful with larger loans.

Once they have accepted an unusual property, most lenders will generally offer their full range of discounted and fixed-rate deals, and will also apply their usual income multiples and affordability criteria. But you may have to put down a larger deposit. "Many will only lend 50 per cent or 75 per cent of the value of more esoteric properties," Williams says.

If you can't find a mortgage, contact a local broker with experience in arranging loans on your style of property. A good insurance broker might also come in handy.

Mike Chapman, head of household schemes at broker Household Insurance Services, says conversions can prove difficult to insure. "Barns weren't built to live in and often have quite shallow foundations, which means they can suffer from subsidence, particularly if you add weight by building a second storey. Sometimes we can only find cover through a specialist insurer or Lloyd's syndicate."

Chapman has arranged insurance for converted barns, water mills and windmills, and says a little local knowledge goes a long way. "If you contact the call centre of a direct insurer you might struggle to explain that you want to cover a converted water tower, but a local broker may already have dealt with that type of property and know which insurer to contact," he says.

Even the most flexible lenders can't help if you want to make your home on the water, say, on a narrowboat Dutch barge or purpose-built houseboat. Try specialist lenders RoyScot Larch, Barclays Marine Finance, or marine loan brokers Collidge Partners.