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Is your flat out ? October 2004
Lenders
have different criteria for
mortgages on apartments. They tell Jane Attwood
where and when they are prepared to offer a loan
Most
people favour a spacious house, but for many a flat is often the
only option. There are certain things you must consider before buying
a flat, not least of which is whether your chosen mortgage lender
will have any objections to handing over the cash or not. We questioned
a range of mortgage lenders as to their lending criteria for flats
and not all of them give the green light on all apartments. A summary
of the results can be found in the table.
The long and short of it
One major factor determining the desirability –
and therefore value – of any property is whether it is leasehold,
freehold or has a share of the freehold (see box). Most flats are
leasehold, and as a potential buyer you need to check the length
of the lease. Most leases are 100 years or more, but if the lease
drops too low, you might start having trouble getting a mortgage.
“The value of a property is in its lease. If a lease is below
70 years in length, the value is diminished and it becomes a wasting
asset,” explains Ray Boulger, senior technical director of
mortgage broker Charcol. Usually lenders will set a minimum lease
length, from either the beginning or the end of the mortgage term.
Cheltenham & Gloucester, for example, asks for a minimum length
of 60 years from the beginning of the mortgage term, or 25 years
from the end. It is possible, therefore, that they would allow a
minimum of 50 years – 25 years after a 25-year term –
but as Sue Knight, spokesperson for the lender, explains, “This
depends on individual circumstances. We would look at the whole
package and take into account if the flat were in a desirable area
like Mayfair.”
Most lenders view freehold flats favourably as long as you’re
not buying 100 per cent of the freehold. Some, such as Halifax,
Leeds & Holbeck and Northern Rock, specify that a management
company for the maintenance must be in place for them to lend on
a flat with a share of the freehold. “This is so a third party
is in place that is legally responsible for the work. It helps to
prevent the maintenance level from slipping and avoids disputes,”
says Paul Fincham of Halifax.
A tall story
Flats in high-rise blocks can be problematic, too. Some
lenders impose lending restrictions on blocks reaching six or seven
storeys or flats located over a certain floor. Northern Rock and
Norwich & Peterborough won’t always lend above the fourth
floor; Bristol & West, Leeds & Holbeck and Yorkshire Building
Society refuse loans on properties above floor six; and Mortgage
Trust above floor seven.
Abbey is another lender that treats tower blocks with caution. Spokeswoman
Jane Reynolds explains: “It is essentially down to two things:
the physical condition of the building and its marketability. In
the past some tower blocks were constructed out of concrete, and
if it were in poor condition, this would affect its marketability.
Each case is assessed on its individual merits, however.”
A flat above a business might also give lenders cause for hesitation.
Joe Wiggins, spokesman for Nationwide, explains the society’s
approach: “The acceptability of a flat over commercial premises
will depend on two main factors, in addition to usual construction
and marketability criteria. The first is if any of the commercial
activities in the block are likely to cause a nuisance by virtue
of noise, smell or unsociable hours. The second is if access to
the flat involves passing through the business area, through yards
containing commercial refuse or using poorly maintained external
stairs.” It may be that you find these things acceptable,
but not every potential buyer will.
If you have the chance to buy a former local authority or housing
association flat, lending restrictions may well crop up here, too.
Again, it is to do with the ‘construction and marketable value’
of the property. “In the construction of such properties,
unsuitable or substandard materials may have been used,” says
Yvonne White of Coventry Building Society. “Such property
becomes less marketable – fewer people will want to live there.
We do consider the individual merits of each case and there are
exceptions.” Furthermore, if construction standards are lower,
maintenance costs may be higher.
Above and below
Flats situated in a basement or a flat built above land
not part of the freehold, such as a bedroom built over a common
access passageway (called a flying freehold), could also be of concern
to lenders. Chelsea Building Society lends on converted flats but
has restrictions on those in basements. They must meet minimum price
levels. “These restrictions are in place to protect the buyer,”
says Andy Barr, spokesman for the lender. “Experience tells
us that these types of flats are the most difficult to sell.”
This list of lenders’ restrictions is not huge. If you think
about it, the lender wants the property to be a valuable and desirable
asset which offers good security for the loan you are applying for.
As a potential owner you should be looking for much the same.
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