Struggling to Get a Mortgage on High Rise Flats?
Why buyers struggle to get a mortgage on high-rise homes from ex-local authority blocks to luxury penthouses
Panoramic views, (relatively) clean air and little noise pollution are just some of the advantages of penthouse living but it can be savagely difficult to get a mortgage on many high-rise homes.
Older blocks and ex-local authority are notoriously hard to maintain, with communal services such as lifts and public hallways sometimes falling into disrepair.
But even newly-built luxury apartment complexes encounter issues when hopeful buyers try to get finance to purchase their dream home.
Very few lenders will consider lending against any flat in a property over seven or 10 storeys high and those that do will only agree if a specialist surveyor outlines the reasons they should.
It doesn’t even matter whether you’re looking to buy a home for yourself or an investment property to let out – the lack of appetite from the vast majority of mortgage lenders is the same: Thanks, but no thanks.
Steve Goodall, managing director at Legal & General Surveying Services, said: ‘The problem many lenders have with newer developments is that they experience a very high level of rented occupation which can result in block management issues and poor levels of maintenance and repair.
‘This can then lead to an adverse impact on values and re-sale prospects. As with any emerging trend in construction, there is a nagging concern that with so many new towers and flat developments currently in the planning system, the market might eventually tip into over-supply.’
An oversupplied market is dangerous for lenders: too many properties in one building or area and not enough demand could result in the property’s value dropping.
Andrew Montlake, of mortgage broker Coreco, said those living in London were less likely to be stonewalled by lenders on high rise mortgage applications because demand for homes is so high in the city – but he warned outside the capital it’s a different story.
‘Most of the new developments in London, even those that are 20 storeys and above, do not pose many issues for lenders,’ he said.
‘The only thing to note is that each lender will have a maximum exposure level in a particular block and will not want to lend on more than say 10 per cent of the flats in the block.
‘But outside of London some lenders do have concerns, especially as in their opinion these types of units are the first wave of properties to lose their value in the event of a downturn.’
This opinion does hold some weight unfortunately.
Troubles with new-builds
Development was rife in the run-up to the financial crisis in 2007 with apartment blocks being thrown up at pace in Liverpool, Leeds, Manchester, Ipswich, Norwich, Leicester, Nottingham and Birmingham.
Flats were sold to armchair investors jumping on the buy-to-let bandwagon, buying off-plan and then failing to let properties because they had no idea what tenant demand would be like in the area – terrible, as it sometimes turned out.
Repossessions followed as they failed to repay mortgages, the market became flooded with high-rise flats nobody wanted to buy and prices collapsed in some of the worst-affected areas by 60 per cent.
Lenders had their fingers burned and the scars haven’t yet healed fully.
Craig Hall, new build manager at Legal & General, said: ‘There is definitely a lack of lender choice for customers looking to purchase high-rise flats over seven storeys.’
…and troubles with ex-local authority blocks
Local authority high rise issues are also chiefly to do with concerns about re-sale.
‘This build-type can be problematic,’ said Goodall. ‘Ex-local authority large panel high rises of typically more than 20 storeys remain a problem for the majority of lenders and many make blanket restrictions that impact newer private modern blocks in prime areas as a result.’
There are hybrid approaches that permit lending up to certain floors within a high-rise block, for example up to the eighth floor, but not beyond.
Halifax, Kent Reliance, NatWest and TSB are the only lenders that regularly lend on ex-local authority homes in high-rise flats – and that in itself is a problem.
The small number of active lenders greatly increases the chance that they will turn down mortgage applications because they have already lent against multiple properties within one building and don’t want excessive exposure.
Lenders will also want to see that more than 50 per cent of the flats are now privately owned and blocks with five floors or more have a lift in working order.
Problems keeping a premium property up to premium pricing when communal areas are neglected also poses concern for lenders – and the risk of this happening increases dramatically on high-rise properties.
From understanding the real value of floor space in studio flats to issues surrounding communal facilities such as the number, position and size of lifts, the values of each flat within a building can vary widely and impact the type and volume of potential resale buyers.
All of this makes many lenders simply want to wash their hands of it.
Goodall said: ‘Having a lift may sound sufficient but if it cannot withstand modern pushchairs, wheelchairs or deliver access to private car parking then buyers will be deterred. Confidence in the resale value therefore affects a lot of lender guidance and it is why surveyors are often asked to give a specific opinion.’
Room for improvement?
Lenders however claim they are trying to be more flexible in offering mortgage finance to borrowers who want to live the high life.
A spokeswoman for Santander said: ‘We recognise that as the population grows, cities get more saturated. There is a well-recognised shortage of housing in the UK, meaning people are starting to build up rather than out.
‘We want to support all customers get a foot on the housing ladder, whatever type of property and wherever they are. In cities like London, we can and do go over seven storeys, subject to a valuer report.’
For flats, loans up to and including £350,000, Santander will lend up to 95 per cent loan-to-value and for loans over £350,000 it will lend up to 85 per cent LTV.
She added: ‘As cities like London continue to grow, we are already seeing more and more residential properties appear on our skyline.
‘I think lenders’ propositions will evolve with that of the skyline, so anticipate in the next few years we will see more lenders becoming more flexible.’