Apartment Mortgages Explained

If you’re looking to get a mortgage on an apartment – more commonly known as a ‘flat’ in the UK – there are things you need to be aware of due to lenders having different approaches to different apartment types, of which there are quite a few.

Generally, getting support from a mortgage broker if you’re looking to buy an apartment should make your application process relatively straightforward. However, here is a guide that tells you more about getting a mortgage on an apartment.

Can you get a mortgage on an apartment?

Yes, of course you can. Financing for this type of property is fairly common. While it is certainly achievable, there are more complexities than getting a mortgage on a house simply because there are so many variations and types of apartments.

Essentially, though, applying for a mortgage on a flat will be a similar process as for a house, whether that be a residential mortgage or a buy-to-let, so work with your broker to ascertain your position on affordability, eligibility factors and preferential mortgage types before they search for suitable potential lenders for you.

How is it different from a standard property?

Because an apartment is a living quarter within a larger property with separately owned homes inside, rather than a self-contained building like a house, lenders will need to look more closely at this kind of non-standard building before being satisfied that it’s fit for mortgaging.

Implications for different types of apartment

The many different variations of apartments will be assessed based on their unique characteristics, and then offers will be based on them. For example, many lenders will not be willing to stretch to a higher loan-to-value ratio on a loan for a new-build apartment as opposed to a standard flat (lenders view new-builds as being priced at a premium, with value instantly dropping once bought, and therefore deem them riskier).

Other examples of which lenders are open to mortgaging but might be more meticulous about are:

• Studio flats: These one-room living areas are usually small and, therefore, priced much lower than more standard apartments. Very small studios may not reach the minimum required square footage that some lenders insist upon.
• Apartments above/within commercial buildings: Apartments located above shops, pubs, and food outlets might come with their own complications and security drawbacks. Therefore, some lenders will insist on getting a valuer’s report on the property before agreeing to lend on it. Some banks might even stipulate that there is one clear floor between the commercial area and the property.
• Ex-council flats: Lenders must be reassured of the ex-local authority home’s resale value. The rules could also include rules about balconies and storey heights, private ownership precedent, communal gardens, or clear rules on minimum property value or maximum floor area.
• Basement apartments are not overly contentious for lenders, but most still prefer a report on the property before committing.
• Number of storeys: The criteria for this fluctuates wildly from lender to lender, from some asking for no more than five if built before 2000; a lower loan-to-value for more than a certain number of storeys; lifts required if more than three or four storeys; seven storeys accepted with conditions; maximum 20 floors; maximum three floors; to no maximum at all.

Leasehold and freehold

Some apartments are leasehold, and some are freehold, and which one your property falls under will affect your mortgage success. Lenders prefer leasehold flats because the land they sit on has one single owner (and you are ‘leasing’ that land), making the situation far less complicated regarding who is responsible for it.

There aren’t many lenders who will approve a residential mortgage on a freehold apartment, but there are still a good handful who will. Bear in mind that the remaining term length of the leasehold will also carry weight in the mortgage application, with fewer years left on it, meaning potentially fewer mortgage options than if there were plenty. More than 100 years left is preferable.

How a broker can help secure the lending you need on an apartment

Experienced mortgage advisors can make a huge difference to the outcome of your application, especially when it comes with slight complexities. While trying to secure a loan on an apartment might sound like it should be simple because they’re so common in our property market, the reality can be quite different because of the huge gaps in building types.

Despite these hurdles, a good broker will know which lenders are flexible and amendable regarding apartment lending and how to approach their application processes. An impartial broker, like the ones we work with, will also talk you through the practicalities of your chosen property and its feasibility and will support you by strengthening your application. You can find out more about apartment mortgage brokers by calling us on 0330 818 7026 or making an enquiry online.

Can you get a mortgage on an apartment with cladding?

Since the fire disaster at Grenfell Tower in London in 2017, apartments housed in tower blocks with cladding have been far more difficult to get a mortgage on. It’s not impossible, though. Banks are split about evenly on the subject, with some lenders giving conditions and others refusing to consider applications altogether.

For those open to applications, you’ll need to obtain some quality assurances, such as EWS1 forms, an A3 or B2 rating, a positive valuers report, or meeting the Ministry of Housing, Communities and Local Government guidelines. Sometimes, storey heights are included in the criteria, such as the date it was built. For example, Barclays determines that any property built after January 1, 2020 is assumed to have cladding that meets current fire safety regulations, therefore not an issue.

What types of mortgages are available for apartments?

Just like with houses, there are a number of different types open to you. There is the standard residential repayment mortgage, which involves paying off the cost of the flat plus interest over a specified term length, or even the interest-only residential mortgage, which involves only paying the interest accrued every month until the end of the term. Lenders tend to offer lower loan-to-value mortgages on flats than on houses.

Buy-to-let and commercial buy-to-let mortgages are also available on flats. There are the usual eligibility criteria for these, and you might have to prove that you’ll receive at least a 125-130% yield on your mortgage payments for a buy-to-let, and interest rates can be higher for commercial.

How much can you borrow?

The affordability rules for apartment borrowing are similar to those for a regular house mortgage. Banks will check your income and expenditures to determine whether to approve the loan amount.

Input your own annual salary into our online mortgage calculator to get an estimate of how much you might be able to borrow to purchase an apartment.

Eligibility criteria

The range of loan-to-value mortgages for an apartment is much the same as with houses. However, there are certainly fewer options. So some lenders might offer you a 95% loan-to-value ratio, meaning you only need a 5% deposit, while others might offer as little as 60% or 70%, leaving you needing a 30-40% down payment.

For clarity, there are three mortgage lenders at the bottom of the ladder offering 60% loan-to-value ratios and about 20 at the top who offer 95% – but don’t forget, each of these has its own restrictions and criteria within them, as we’ve already outlined.

Can you get a mortgage loan for an apartment building?

Yes, this is an option if you’re looking to buy a whole building as a commercial freehold owner, for example, if you’re looking to invest in property as a landlord. This is called a multi-unit freehold block, and interest rates are often higher. Loan-to-value is usually slightly lower than average but still often at a solid 75%.

Speak to a broker experienced in mortgages for apartments

Our specialist advisors have a wealth of experience securing apartment mortgages for all types of clients, buildings, loans and eligibility brackets. They understand the hurdles that must be overcome and have seen every scenario before. This means they will understand your circumstances and be able to direct you accordingly.

We can match you with a five-star rated broker today to start the conversation around what kind of support you need and what type of outcome you’re looking for. With access to the entire market and contacts in the right places, the right broker will work hard to ensure your application is a success.

Call us on 0330 818 7026 or make an online enquiry for an initial free consultation.