Buying a House With a Deed of Covenant

Find out what you need to know about buying a property with a deed of covenant.

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Pete Mugleston Nathan Porter

Author: Pete Mugleston - Mortgage Advisor, MD

Reviewed By: Nathan Porter - Independent Mortgage Advisor

Updated: August 18, 2023
September 1, 2022

Some homes come with a restrictive covenant as part of its deeds. Here, we look at what that can mean and how it can affect applying for a mortgage. We also identify what happens if you breach a covenant and how you could protect yourself should the home you’re looking to buy have one attached.

What is a deed of covenant when buying a house?

A deed of covenant is part of a contract that stipulates certain terms with which the homeowner has to comply. Importantly, that covenant is written into the property title deeds, not to the homeowner specifically. It means that the covenant remains with the property. Covenants can be on both leasehold and freehold properties.

In essence, they provide legally binding assurances in the future which can protect people in a variety of ways. For some, including a deed of covenant can be financially beneficial as it means they may be paid fees in future if they need your permission to extend, renovate or use their property in specific ways.

Leasehold properties are good examples where the lessor is paid ground rent regularly. It can also be beneficial for landowners as a way of protecting their land or even the look of a property or area.

For example, a covenant can restrict how a property or piece of land can be used in the future. They can also prevent how a homeowner alters the house, which is something to carefully consider if you want to buy a property to renovate it.

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Should you buy a house with a restrictive covenant?

Your conveyancer should explain what the restrictive covenant in your potential deeds means and how it impacts you. It is then for you to decide whether you want to take the purchase forward. Some covenants may not affect or bother you or your future use of the property. Some may be a dealbreaker.

Here are some common reasons you may not want to continue with the purchase:

Stopping renovations and alterations

One of the main reasons that covenants first came about was to prevent buildings and land from being built upon or altered in the future. So, if you want to renovate your house, you may need to seek permission to do so first. Covenants of this nature are common amongst listed homes. You may also find that covenants can stop buildings from being converted to flats.

Additional fees

Housing developers are increasingly putting restrictive covenants into their deeds. Sometimes, they can be as innocuous as not putting up satellite dishes on the outside of properties to help maintain the look and feel of a new development. However, sometimes, developers insert covenants resulting in owners having to pay a fee for various reasons. For example, if you want to extend your home, you may have to pay to do so.

Preventing business

Many covenants were introduced to stop particular business activity on the premises. If you are considering using your home or land for business, you’ll need to ensure that you can do so legally if you have a covenant like this in place.

Easements

Easements are when a person has some form of right over a property which they do not own. It is usually with regards to a right of way so a person can cross the property to get to their own land. As with all covenants, your solicitor will need to explain the specific details of an easement restriction. They can vary with respect to how that access is provided i.e. via foot or car.

As you can see, covenants cover a wide range of issues with the subsequent ramifications varying dramatically. Before exchanging, you must be sure you are happy with the covenants your specific property has. Once after the exchange date, you will have to comply with the covenants as laid out in your deeds.

How could a restrictive covenant affect your mortgage?

A restrictive covenant can reduce the choice of options available for mortgages. Providers will see a restrictive covenant as an increased risk so may be less likely to extend your loan. It means that you may have less favourable terms from which to choose. That could mean you then require a larger deposit or having to accept a mortgage with a higher interest rate attached.

Specialist brokers will be able to direct you as to what providers to approach in such a situation. They’ll know which lenders will accept your application and offer you the most favourable rates even with a restrictive covenant on your property.

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What happens if you breach the covenant?

The ramifications of a breach depend on the covenant. For example, should you have had any work done which was not allowed, you may have to return the property to its original condition.

With any breach, however, you could put yourself in line for being sued and having to pay any damages or legal fees.

How a broker can help with your mortgage when a covenant exists

While restrictive covenants do not prevent you from getting a mortgage, they can make the process a little more difficult. Some lenders may be more hesitant to lend on properties that have such restrictions in place – while others will have a far more lenient approach. A broker will know which lenders are more flexible, particularly in light of your own specific circumstances.

They can prove invaluable in helping you successfully apply for a mortgage with favourable terms – perhaps lowering your monthly repayments or ensuring that you can borrow the full amount you require.

The brokers we work with have in-depth knowledge of the market so they can best direct you to the right lender to get a mortgage despite a covenant. Contact us today so we can put you in touch with one.

How can you protect yourself against a covenant?

If you want to go ahead with your purchase, you can either seek a declaration from the lands tribunal that deems the covenant invalid or you can buy legal indemnity insurance.

Legal indemnity insurance can protect you should anything go wrong with regards to the covenant in the future. For example, suppose you decide to build on your property or extend it, but were unable to find the person who could permit it according to your covenant. In that case, your insurance could protect you against that technical breach. Should you be forced to demolish anything you have built, your insurance could reimburse you for the costs you have incurred for building it in the first place.

However, before resorting to buying indemnity insurance, it is a good idea to work with your solicitor to ensure that every other avenue has been taken before knowingly breaching the covenant and relying on insurance.

How do lenders deal with covenants?

No restrictive covenant will be the same, so lenders deal with covenants on a case-by-case basis. Depending on the covenant, how restrictive it is, and how that may affect the resale price, the terms providers extend you could vary.

For remortgages, the process is similar. Lenders will want to ensure that you have the right paperwork in place – such as indemnity insurance, before agreeing to a remortgage.

Speak to a broker experienced in dealing with cases with covenants

Covenants do not need to cause alarm. However, they can sometimes mean you have less choice for a mortgage provider. As a result, you may find that the interest rates offered to you are higher than you had hoped and your subsequent repayments are more expensive.

A broker can help you as they will know the best providers for your particular property, covenant and financial situation. They can help save you money as well as increase your chances of being approved by guiding you through the application process.

Our free no-obligation broker matching service can put you in touch with a specialist advisor today who has in-depth knowledge of applying for mortgages on properties with restrictive covenants. Call us on 0808 189 2301 or make an enquiry so we can arrange for a broker to speak with you.

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FAQs

A personal covenant is the agreement a borrower makes to their mortgage lender that they will make their repayments according to the timetable agreed. Not making the repayments on time would be a breach of contract.

Your broker or your solicitor will be the person who will know how to find where the benefit of the covenant resides. Typically, it will be the landowner of the property, but not always. Working closely with your solicitor or broker both before signing your contract and after, should you need to contact the beneficiary, is key. 

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About the author

Pete, an expert in all things mortgages, cut his teeth right in the middle of the credit crunch. With plenty of people needing help and few mortgage providers lending, Pete found great success in going the extra mile to find mortgages for people whom many others considered lost causes. The experience he gained, coupled with his love of helping people reach their goals, led him to establish Online Mortgage Advisor, with one clear vision – to help as many customers as possible get the right advice, regardless of need or background.

Pete’s presence in the industry as the ‘go-to’ for specialist finance continues to grow, and he is regularly cited in and writes for both local and national press, as well as trade publications, with a regular column in Mortgage Introducer and being the exclusive mortgage expert for LOVEMoney. Pete also writes for Online Mortgage Advisor of course!

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Pete Mugleston

Mortgage Advisor, MD

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