Mortgage on a Property with Restrictive Covenants: What Lenders Check

A mortgage on a property with restrictive covenants is usually possible, but it depends on what the covenant restricts and how it affects the lender’s security. Restrictive covenants are common, particularly on newer developments and older estate land, and many do not cause any mortgage problems at all.

This guide explains what restrictive covenants are, which ones lenders pay attention to, and when they can become an issue for mortgage approval.

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What are restrictive covenants?

Short answer: legal rules that limit how a property can be used.

Expanded explanation:
Restrictive covenants are conditions written into a property’s title deeds. They restrict certain actions, such as:

• Altering the property
• Running a business from home
• Changing the appearance of the building
• Using the property for specific purposes

They are legally binding and usually remain in place even when the property changes ownership.

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Do restrictive covenants affect mortgage approval?

Short answer: not usually, but some covenants matter more than others.

Expanded explanation:
Most lenders are comfortable with standard restrictive covenants, especially those that:

• Preserve the character of an area
• Limit commercial use
• Control alterations

Problems arise when a covenant could:

• Reduce the property’s value
• Make it harder to sell
• Prevent necessary repairs or alterations

Lenders focus on whether the covenant limits their security if they ever needed to repossess and sell the property.

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What types of restrictive covenants concern lenders most?

Lenders tend to pay closer attention to covenants that:

• Restrict selling or transferring ownership
• Prevent essential maintenance or alterations
• Limit residential use
• Require ongoing permissions or fees
• Allow enforcement by third parties

Covenants that significantly affect how the property can be used or sold are more likely to be flagged.

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Are common covenants usually acceptable?

Yes.

Short answer: many covenants are routine and acceptable.

Expanded explanation:
Examples of covenants that rarely cause mortgage issues include:

• Restrictions on building extensions without consent
• Limits on running a business from home
• Rules about property appearance

These are common and typically do not reduce a property’s marketability.

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What if a covenant has been breached?

This is where scrutiny increases.

Short answer: breaches don’t always stop a mortgage, but they must be addressed.

Expanded explanation:
If a covenant has been breached, lenders will usually want reassurance that:

• Enforcement action is unlikely
• The issue is insured or resolved
• There is no ongoing legal risk

In many cases, indemnity insurance is used to protect both the lender and the buyer.

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Do lenders require covenant indemnity insurance?

Sometimes.

Lenders may require indemnity insurance where:

• A covenant has been breached historically
• Enforcement risk exists but is low
• Formal consent was not obtained

This insurance protects against financial loss if enforcement action is taken in the future.

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How do solicitors assess restrictive covenants?

Solicitors play a key role.

They will:

• Review the title deeds
• Identify restrictive covenants
• Advise whether consent or insurance is needed
• Report relevant issues to the lender

If a solicitor flags a covenant as high risk, the lender may impose conditions or decline the application.

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Can restrictive covenants affect remortgaging?

Sometimes, yes.

Remortgaging may be affected if:

• A new lender applies stricter criteria
• A historic breach is uncovered
• No indemnity insurance is in place

Staying with an existing lender can be easier if the covenant was already accepted previously.

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Do restrictive covenants affect property value?

Short answer: usually not, unless they are severe.

Expanded explanation:
Most restrictive covenants have little to no impact on value. However, value may be affected if a covenant:

• Limits future development
• Restricts common buyer expectations
• Applies unusual or onerous conditions

Valuers consider how the covenant affects marketability rather than its legal wording alone.

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Are new-build properties different?

Often, yes.

New-build homes commonly have restrictive covenants, such as:

• Limits on alterations
• Requirements to maintain appearance
• Restrictions on commercial activity

These are well understood by lenders and rarely cause issues, provided they are standard for the development.

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What documents do lenders usually review?

Expect lenders to rely on:

• Title deeds
• Solicitor reports
• Valuer comments
• Details of any indemnity insurance

Clear reporting from solicitors helps prevent unnecessary delays.

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Key points to understand before applying

• Restrictive covenants are very common
• Most do not affect mortgage approval
• Lenders focus on saleability and risk
• Breaches may require insurance or resolution
• Solicitor reporting plays a major role

Understanding covenants early can help avoid surprises later in the mortgage process.

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This guide provides general information only. Personalised mortgage advice should always come from a regulated mortgage adviser.