Traditionally January is a busy time in the mortgage market. After writing a record 364 mortgages personally last year (not to mention those arranged by the rest of the LIFT-Mortgages team), I have high hopes for another successful year.
We always like a challenge and for some property types, mortgages are not so straightforward.
For those of you looking for a new property in 2017 or for first-time buyers reading this blog, these are the types of purchase that are generally a little more difficult to finance.
New build property seems to be springing up in every town. Some lenders, however, have issues around new build property or more particularly new build flats.
New build property can be hard to value due to being new to the market. Often the builders offer incentives which lenders find unattractive and there can be issues with reselling a recently possessed property as many new build properties continue to be built.
Most of the mainstream lenders restrict mortgages on this type of property to between 75% and 85% loan to value i.e. a £500k flat will need a deposit of at least £75k (15%). If you walk into your local bank branch hoping to get mortgage help without the right deposit, the bank is unlikely to help. An exception is if you want to use the government’s equity loan scheme.
There are lenders that can potentially go higher than the standard High Street loan to values so if you do have a smaller deposit, talk to a whole of market broker that has relationships with these lenders.
Flats above shops
Typically flats above shops present an issue for most of the major lenders. A lot will depend on what the shop is used for. Issues occur if the shop on the ground floor or even a shop in the parade is a takeaway outlet, nail bar (chemicals kept on site), a dry cleaners or nightclub for example. As with all things mortgage related, location is key and if the location is great then you may have a chance, even with one of these shops below you.
Usually the price reflects the fact that the property is going to be almost impossible to mortgage but I generally advise a client to steer well clear of these properties. Many clients buying a flat in London do so as a temporary measure with the aim of moving out to the Home Counties later in life and we need to make sure our client can sell the property and have an exit strategy in the future.
Flats above certain shops have always been problematic to mortgage and I do not see that ever changing.
Ex council flats (but especially those with deck access)
There was a time when just looking to purchase a flat that is “ex LA” as we call it in the trade was a non-starter. These days the high street tends to take a more common sense view on ex LA flats, especially in and around London. One thing most lenders will not budge on however is deck access. Deck access is basically a long balcony from which all the front doors of the flats on that floor enter. Most lenders will not consider these properties, but again there are some that will consider them, subject to location.
Leasehold properties with short leases
Every lender’s definition of this varies but generally, they like to see 55 years as a minimum on the lease. I personally advise clients that they should think twice about anything below 75-80 years. There is nothing fundamentally wrong with buying a property with a short-term lease if it is reflected in the purchase price. The process to extend a lease is often slow and tiresome and can run into tens of thousands of pounds so agreeing the right purchase price and checking with a good solicitor that the lease extension process should be simple is essential.
Farms and outbuildings
A lot of clients are surprised to learn that having a farm with stables or a working farm yard or even a large number of acres is a real issue to the bulk of lenders. Lenders tend to place a limit on the number of acres at roughly 4-8 acres. Anything higher would be an automatic decline before the surveyor has even set foot over the property threshold. Most lenders do not want a farm or several commercial farm buildings as this is a limited resale market and the key for the lender is always being able to resell a property quickly if they have to repossess.
The lender (and sometimes the client) may also struggle to get a true idea of the costs of upkeep for farm type buildings. We know a good lender with strong rates that can take a view on these types of properties but it again is a very limited market.
So that in short covers the bulk of problematic properties. To add to this I could have also mentioned anyone that wants to buy to Air BnB, property made from nonstandard construction types, house boats and many other weird and wonderful enquires that come across my desk. There are always lenders to help but most of my clients are City based professionals for whom interest rate plays a major factor in the decision-making process. If you cannot source a mortgage for the property easily, how will a future buyer do the same?
Happy New Year to you all.