Guide to mortgages for ex-local authority houses and flats
- Some lenders may not lend on ex-local authority homes and, even if they do, they may impose extra restrictions or a lower loan-to-value
- Unusual construction such as concrete or prefab can be more common in ex-council homes, so check for potentially unmortgageble problems before making your offer
- You could speak with a mortgage adviser for advice on all types of ex-local authority property
Buying ex-local authority houses or council homes might offer good value, but have you considered the implications for your mortgage application?
An ex-local authority flat or former council house can be a financially attractive prospect to homebuyers and buy-to-let investors alike.
Since 1969, all council housing has been built to Parker Morris standards, meaning room sizes and floor space have to meet certain minimum standards which are often more generous than in other, similarly priced homes.
Yet a stigma remains with buying ex-local authority homes, for mortgage lenders, if not for buyers.
It can be more difficult to get a mortgage on ex-council homes, particularly of certain types.
Buying ex-local authority property is different from Right to Buy because you’re looking to purchase a home that’s already been bought from the local authority – probably because a previous owner exercised their own right to buy to become a homeowner.
Local authority tenants looking to get a Right to Buy mortgage may well face similar obstacles when it comes to finding a lender.
Some lenders may be reluctant to lend on certain types of construction that can be more prevalent in ex-local authority housing stock.
The area that the home is in might also put lenders off, particularly if it’s surrounded by a high density of rented council properties rather than owner-occupied homes.
Lender reticence is often down to the perceived resale value of a property, so they may exclude certain types of homes on this basis.
Loan to value on ex-local authority properties
Some lenders will impose a lower maximum loan-to-value (LTV) on ex-local authority properties to help protect them from drops in house prices.
For example, they might have a maximum LTV of 90% on houses, but only 85% on ex-local authority houses; a maximum LTV of 80% on flats, but 75% on ex-local authority flats.
This could mean that you have to find a larger deposit than you expected.
Types of construction in council homes
Despite the generous Parker Morris space standards, councils often aimed to build homes for tenants quickly and cheaply, which can mean that they’re not particularly attractive or built to last.
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A post-war housing crisis meant concrete and pre-fabricated houses and flats were built in great numbers by councils in the 1950s and '60s, and they've since been sold off into private ownership.
Many lenders are unwilling to lend on homes of concrete construction, particularly when certain types of concrete have been used.
It’s not always obvious that there’s anything unusual about the construction, as the exterior might be rendered or have a brick appearance.
It’s a good idea to ask the estate agent if the construction of any ex-local authority homes you view is unusual, as that’ll help avoid nasty surprises when the survey’s done.
Mortgage problems with ex-local authority flats
To achieve as much accommodation as possible in an area, council flats are sometimes arranged in high-rise blocks.
Some lenders won’t lend on flats within blocks over a certain number of stories, even if the flat in question is on a lower floor.
Another feature sometimes seen in local authority blocks is external walkways to access the flats, and some lenders will also refuse to lend on properties with this type of access.
Level of private occupation
Something that might put off mortgage lenders is a low percentage of owner-occupied flats in a local authority block.
This is because these flats can have a lower market value than flats in blocks with a high level of owner-occupied properties.
Major works plans
Your lender’s decision may be affected by any major works planned for the block of flats.
This is because leaseholders in a block of council flats may have little say over improvements and repairs the council plans to make and could potentially be saddled with bills for tens of thousands of pounds.
Sometimes there’s no sinking fund from the service charges to cover this sort of work, meaning the cost can be particularly high.
Your conveyancer should check plans for impending major works, but you might want to make your own enquiries before making an offer to save you the cost and heartache of an unsuccessful mortgage application.