Home Mover Mortgage
Jamie Elvin talks all about mortgages for home movers.
Mortgages for flats
One in five households in the UK are flat’s and with an ever-growing population, chances are, more and more of us are going to be living in flats rather than houses.
There are many great reasons to live in a flat, the most obvious being that they are usually significantly cheaper than houses.
As with anything, there are some draw backs as well, this guide explains some of the key things you need to be aware of when looking to buy a flat.
What mortgages are available for flats?
Almost all mortgage providers will consider mortgages for flats, however the criteria does vary significantly depending on the property type and the intended use of the property.
For example, the criteria and deposit requirements are generally different for the following types of flats;
- New build flats
- High rise blocks of flats
- Ex local authority flats
- Freehold flats
- Flat’s above commercial premises
- Flats with shorter lease lengths
- Studio flats & small flats
- Non-standard construction flats
- Flats over 4 storeys with no lift
Your options will also vary depending on what you are purchasing the property for. For example, if it’s your main residence or a buy to let investment, or as a holiday home or let.
Why are some flats hard to get mortgages on?
There are some flats that certain mortgage lenders will either not lend or require a larger deposit for them to consider.
This is usually down to question marks over the potential saleability of the property.
Some lenders are more open to certain types of properties that others, in most cases there will at least be a specialist lender that may consider if the mainstream ones do not.
Residential mortgages on flats
This is a mortgage on a flat that you intend to live in. Subject to the property meeting the lenders criteria they can be arranged with as little as 5% deposit.
Whilst lenders offer residential mortgages with deposits as low as 5%, there are a large percentage that require larger deposits.
At the time of writing (25.02.2023) lenders like HSBC, Nationwide, Virgin to name but a few all require 15% deposits on non-new build flats.
Whilst there are plenty of lenders that do consider with smaller deposits, it’s therefore worth confirming with your broker if you’re considering buying houses as well as flats.
Second home residential mortgages on flats
Mortgage providers generally require a larger deposit if you’re purchasing a property as a second home, this isn’t too dissimilar to second home mortgages on houses.
Lenders generally insist on a minimum 20-25% deposit for second home mortgages, although there are also plenty of lenders that will consider as low as 10% and one or two at 5%.
Buy to Let mortgages on flats
The criteria on buy to let flats is much the same as on Buy to Let houses, you’ll typically need a deposit of at least 25% of the property value and in most cases, the amount you can borrow is based on the rental value of the property.
Mortgages for a flat above a shop
The criteria for mortgages on flats above commercial premises varies significantly.
Mortgage lenders will consider the risk and resale ability of a property when valuing and flats above commercial are deemed to be higher risk.
When we refer to higher risk in this scenario, we are talking about the whether the bank could quickly and easily sell the property in the event they were to repossess. Certain flats may be less desirable to the masses for several reasons.
- The use of the shop below could change hands or use
- Smells from restaurants below
- Noise from surrounding bars/shops/restaurants
- Risk of fires from commercial properties below
Some lenders will have a blanket policy on flats above commercial, for example Virgin will not consider flats above commercial at all.
Other mainstream lenders may consider depending on the commercial property type.
For example, not lending on properties above or adjacent to pubs, restaurants, off licences, fast food outlets, casinos, anywhere open late night, or that serves alcohol as well as any shops that pose a potential fire risk.
Some specialist lenders may consider some
of the above property types but will likely have higher rates because of the increased risk.
The proximity from the shop may have some bearing on the lenders decision to lend.
For example, a flat on the 6th floor of a building above a shop is unlikely to suffer from noise pollution or nuisance smells compared to the flat directly above it.
Some lenders may require an increased deposit for flats above commercial premises.
Is it worth buying a flat above a shop?
This will depend on your preferences and the property itself.
Positives on buying a flat above a shop
On the plus side, they are usually a lot cheaper than ordinary flats and you’ll get much more for your money.
It may be that you need a second room for an office or child and that you simply can’t get the type of property you want within your price range, but a cheaper property above a shop ticks all the boxes.
If you’re younger or perhaps renting the property to students and less concerned with noise late at night, then it may be worth considering.
If you’re looking to holiday let the property, you’ll less likely get noise complaints from neighbours, if for example the shop below is a pub.
Negatives of buying a flat above a shop
You will have a narrower selection of mortgage lenders and if you need specialist lending may pay a lot more in interest.
You may suffer from noise and smell from the shop below which could unpleasant or unbearable.
The shop could change hands or use, what may have been a quiet book shop before could become a noisy restaurant.
There’s potentially an increased risk of forte hazard, especially above restaurants.
Re-sale issues – When you come to sell the property, future buyers will have the same issues you will face, and you may be limited to cash buyers or those willing to take out specialist finance.
Mortgages on Studio flats
With a lack of affordable housing, studio flats have become increasingly popular. However, whilst most do, not all lenders consider mortgages on studio flats.
A high percentage of mortgage lenders will not consider mortgages on studio flats smaller than 30 meters squared. Some will consider smaller than this, subject to surveyor’s comments.
There are substantially less options for Buy to let mortgages on studio flats smaller than 30 square metered, only a handful of them are mainstream/high street.
This is again because lenders deem them riskier due to potential resale concerns in the event of repossession.
The minimum size does not necessarily just apply to mortgages on studio flats and can be for small one-bedroom flats as well.
Mortgages for high rise flats & Mortgages for ex local authority flats
There has understandably been a lot of attention and focus on high rise flats following Grenfell and this has transpired into the mortgage world.
The definition of a high rise flat will vary between lenders, but generally it’s 5-7 storeys or above.
Mortgage lenders view some high-rise flats more favourably than others.
Mortgages on Ex-local authority flats are harder to find and there will be fewer options if the block has a low level of homeowners and a high level of council tenants. That said, it’s not impossible.
Lenders will often steer clear of high-rise blocks built with potentially dangerous or flammable cladding, although the government are in the process of repairing these.
Some lenders do not lend on high rise flats with deck access. Deck Access Refers To A Walkway That Leads To The Door Of A Flat. This Balcony Walkway Is Common In Ex-Council Flats.
Leasehold versus freehold flats
Securing a mortgage on a leasehold flat is fairly straightforward.
Your solicitor will carry out checks to confirm the lease complies with the lenders requirements and that it contains no onerous terms that may make the property unsuitable for you to buy.
Lease lengths can be arranged over hundreds of years, up to 999 years.
The shorter your lease length the more expensive it is to extend. It becomes increasingly expensive when below 80 year’s when ‘marriage value’ kicks in.
The lenders criteria on minimum lease lengths varies between lenders. Some insist on a minimum 70-80 years on application and a smaller proportion will consider as low as 60 years on application.
This is subject to surveyor’s comments and the lease not being below a certain length at the end of the term, for example 30 years.
If the lease is short at the point of application, most lenders will allow the seller to extend the lease to a suitable length prior to completion.
Mortgages for Freehold flats
The term ‘freehold flat’ can mean two different things. The first being ‘share of freehold’ in mortgage terms this is to all intents and purposes the same a leasehold flat, however the leaseholder has a bigger say in the overall running of the flat.
When we talk about ‘outright freehold’ flats we are referring to a flat with no lease at all.
This might at first sound like a good thing, however it’s a big no-no for most lenders.
This is because there is no lease in place to stipulate who’s responsible in the event of certain issues, Instead, your personal responsibility extends to the boundary of your flat, and neither you nor anyone else in your block will be obliged to deal with any maintenance issues that could arise.
Whilst their lenders that offer finance on this type of property are few and far between, it’s certainly not impossible.
Mortgages for New build flats
Mortgages for new build flats are relatively straightforward to arrange, the main difference compared to non-new build properties is the deposit required.
Just like with new build houses, lenders require a bigger deposit to protect themselves from potential depreciation in the initial years. It’s not uncommon for lenders to require 15-25% deposit on residential new build flats, however some will consider smaller deposits.
How can Strive Mortgages help?
There are lots of factors to consider when buying a home and even more so when buying a flat. We have lots of experience arranging mortgages on flats and are on hand to help you understand all your options and work out what’s best for you.
If you’re thinking about buying or re-mortgaging a flat, whether it be to live in or rent out, we’d love to hear from you.