Most banks and building societies are not keen to provide mortgages on properties with an Overage Clause against the security address. However, if you have agreed to buy a property with a clause, there are some options.
The lenders typically do not want to take the risk of giving a mortgage on a property they may struggle to sell if they ever need to repossess it.
One of the biggest lenders will potentially provide a mortgage if the property's "acceptability is based on a satisfactory valuation" but they will want to see a "full report from the bank's appointed valuer." However, it says non-standard construction will be assessed on individual merit.
Aaron Strutt, product director at Trinity Financial, says: "If a bank or building society is going to provide a mortgage, the person at the lender assessing the application will want to see 'sight of the wording' needed. This is often in the property's title deeds.
"One of our clients recently had an offer accepted on a property and he only mentioned that there was an Overage Clause after we submitted his application. We had to resubmit and apply to another lender with more lenient policies.
"The property he was buying had a large garden, and the seller did not want him to benefit from developing or selling on the property without getting a cut of the profits."
Smaller lenders also offer Overage Clause mortgages
Some small building societies are keen to provide Overage Clause mortgages. For example, the Stafford Railway Building Society can potentially consider a property with an Overage Clause. ESBS can provide these mortgages to borrowers with a 25% deposit.
Smaller lenders tend to charge higher rates than many of the bigger banks, so if your options are limited, it is worth approaching the more prominent lenders first and then going to a smaller provider.
What are the most typical overage clauses?
A haylage clause is a relatively standard and Agricultural occupancy condition (AOC). Also, Certificates of Lawful Existing Use or Development (CLUED or CLEUD).
Do solicitors have to report overage clauses to the lenders?
Even if the Lender issues a mortgage offer without referencing the overage agreement, The UK Finance Lenders Handbook Part 2 states solicitors must report any clauses.
The handbook says: "The title to the property must be good and marketable free of any restrictions, covenants, easements, charges or encumbrances which, at the time of completion, might reasonably be expected to materially adversely affect the value of the property or its future marketability (but excluding any matters covered by indemnity insurance) and which may be accepted by us for mortgage purposes.”
Steph Lyke, a Partner at SAS Daniels, says: "An overage clause needs to be reported to the Lender for their specific guidance, instruction/consent. Borrowers wrongly tend to think that if a mortgage offer is issued, then the Lender has accepted the position.
Steph adds that in many cases even with the mortgage offer issued, "it generally means the Lender is not aware of the agreement, or they are then relying on our advice and opinion on how this would affect re-sale. The most common reason for overage is redevelopment, and the clause can be triggered by different events, i.e., the granting of planning permission, commencement of work, or resale at a profit."
Call Trinity Financial on 020 7016 0790 to secure a mortgage or book a consultation
The information contained within was correct at the time of publication but is subject to change
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