The Unmortgageables.

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Publish Date:

Nov 8, 2019

(4 weeks ago)


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The Unmortgageables.

Written by the Founder & Sales Director of EXLA London, Chris Dugard.

 

When are banks going to get with the times and stop making up excuses not to lend on ex-council properties in London?

For those of you that don’t know, buying ex-council properties can be tricky, and an absolute minefield when it comes to getting a mortgage, making the whole process a very frustrating, and sometimes impossible situation for both buyers and sellers.

Being London’s first estate agency to sell only ex-council flats, we spend a lot of time talking to buyers who want to buy them but can’t get a mortgage, and sellers that want to sell but can only do so to a cash investor, despite having lots of first time buyers queueing up to buy their flat. 

So why would banks not lend if there’s so clearly a market for this type of property?

Not all ex-council properties are problematic for lenders. However, If you’re trying to buy an ex-council flat that is either above five storeys, has open deck access, is of non-standard construction, or, most peculiarly, is less than 50% privately owned (ie. has a high proportion of social housing tenants), then getting a mortgage may not be as straight-forward as you might expect.

Therefore, before booking a valuation survey your broker or bank will ask the following:

  • Is there open deck access?
  • What’s the construction type of the building?
  • How many storeys high is the building?
  • What percentage of the flats in the building are privately owned?

The first two are somewhat understandable, concrete construction has had well-documented problems in the past, and open deck access can be viewed as a security risk. However, the second two make less sense. They seem to be based on an outdated stigma associated with ex-council properties and illustrate the bank’s failure to recognise that times have changed.

Why is it, then, that the majority of lenders will not lend on a council building that’s over five storeys?

If there’s no cladding and it’s of standard brick construction, then what’s the issue!? There’s enormous demand for them today. Ask any London estate agent. We speak to a great deal of frustrated buyers who find themselves completely blocked from purchasing what are, to them, trendy, high floor homes with amazing views, in desirable areas, well within their budgets yet agonisingly out of reach, and it’s always the same old story of the buyers that tried, often at great cost, to obtain mortgages, but failed because of the bank’s criteria. Even more frustrated are the sellers, keen to move up the ladder, but stuck where they are or left with the unenviable task of finding a cash buyer.

And why do banks want to know how many flats are privately owned in the building?

It seems that lenders use the number of privately-owned flats within a block as a litmus test of its desirability to buyers. The logic being that, if a block was desirable, more tenants would have exercised their right to buy. The fact is that the amount of right-to-buy purchases in a building could just as easily be down to the income levels of the original council tenants and availability of lending as it could be to the ‘kerb appeal’ of the block itself. So, unless a large proportion of the original council tenants were able to find the money to raise a mortgage in the early days of easy lending, many blocks will now find themselves in that paradoxical, self-perpetuating cycle of being unmortgageable solely because they are unmortgageable.

Another more cynical angle is the idea that where social housing tenants outnumber owner occupiers, the banks presume that this makes the flats less desirable, and thus harder to sell. Now, I’d very much like to hope that this isn’t the case. From my experience, the number of social housing tenants in a building has very little influence on a buyer’s decision. 

It seems that it is only a shrinking minority, consisting largely of the older generations, and including the financial institutions who control mortgage lending, who have clung onto their out-dated view of these properties.

People want and need affordable flats, and the most affordable type of flats, especially in London, are ex-local authority, but people aren’t able to buy a large portion of them because of the bank’s perception of them as ‘higher-risk’ or ‘harder to sell’. Considering that the only reason they are hard to sell is because the banks won’t lend on them in the first place, they have created the ultimate ‘Catch-22’ for buyers and sellers.  The banks need to accept that there’s a huge market for this type of property, one they are currently dismissing.

We think it’s about time that they rethink their criteria and open up the door to these properties for the first time buyers at the lower end of the market.

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A big thank you to Chris for sharing his work with us. To learn more about what Chris and his team do, you can go to www.exlalondon.com.