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The low down on what you need to know when financing a flat.
Buying a flat to let is without doubt more complex than buying yourself a freehold terraced house.
There's simply more for you to consider, and it can save you plenty of time and effort if you know what you're up against.
So what do you need to know when looking for finance? Here's the inside track when financing a flat for buy to let...
The number of stories in the block are very important, some lenders only like 4 stories, other 6, others have no limit, as with all mortgages they are subject to surveyors opinion. London buy to let flats are more favoured than outside the M25 so lenders often vary their criteria for London based flats and are often more lenient.
We can usually find you a deal assuming the properties value is not too low, and if you're buying in a taller block it has lift.
A more obvious consideration; how long is the lease? Lenders will either have a required minimum lease term at outset or excess, in other words the period left at the end of the loan term. 35 years is about as low as possible but we don't see many this low without a lease extension simultaneous to purchase, for which you'll need a decent lawyer.
Flats are often built above commercial units on the ground floor, anything from an office to a kebab shop and all that's in between. Lenders prefer to avoid anything that attracts noise or smells and/or is open late. Takeaways, pubs, and launderettes are all good examples. A selection of lenders avoid flats near to commercial property altogether.
These days we can use Google's street view to establish what type of commercial property is close by, and we can pre-handle a query with a lender to avoid losing a valuation fee. As ever, London based, higher value property, has demand in pretty much all circumstances, so anything within the M25 we can consider, and commercial lenders can be used where buy to let lenders are scared off. We tend to have a very good idea ourselves having financed lots of flats above commercial property over the years.
As with all hurdles we can usually get around them, however if the flat presents issues and is not financable through a number of lenders, even though we may be able to finance it through one, you need to consider ease of saleability, and ultimately you may wish to walk away.
Again factors such as number of stories and commercial property (above section) come into play here, but a brand new flat is enough to see loan to values drop with some lenders, so where a lender may normally lend 75% loan to value, 65% can be the norm for some lenders or even 50%, infact some lenders do not lend on new build flats at all. Having said that, 75% is available through various competitive lending sources.
Here's a common scenario to explain exposure limits. Lets imagine you own a flat in a particular block, and there are 7 flats in that block. And you wish to purchase a 2nd flat, taking your ownership level to 2 out of the 7, ie 29%. A lot of lenders would decline the application, as it exceeds 25% ownership within the block which is a standard exposure level.
Its something we would look at prior to recommending a new deal where you wish to own more than one flat in a block.
Flats in this category have a number of things to consider, the main one being how many private owners there are currently. Lenders tend to like 50% of flats in private ownership, but again we have lenders who have no minimum threshold subject to valuation. Deck or balcony access is a problem for some lenders, and the number of stories is again a consideration in an ex council block. Buy to Let for ex council flats in London is again favoured as demand is generally high and prices again strong.
Lenders like good blocks in solid locations coupled with decent letting demand, it goes without saying that in and around London, within the M25, and with decent values of say £300k plus, we can usually find a lender, we tend to struggle where property is low value, and combined with another factor, eg commercial element, high rise or ex local authority.
Whatever the situation, we've usually seen something very similar before, and we have vast experience collectively in financing flats of all types, feel free to get in touch for a no obligation chat, and we'll be happy to give you the right pointers to secure the right flat or apartment.