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A Guide to Flat Mortgages

Key information you need to know about mortgages for flats

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By Pete Mugleston  | Mortgage Advisor Pete has been a mortgage advisor for over 10 years, and is regularly cited in both trade and national press.

Updated: 18th October 2019 *

We get countless queries from customers about mortgages for flats. With more apartments being built, especially in cities where space is at a premium, demand for flat mortgages has risen, and lenders are making more products available for those looking to buy - whether as a first-time starter home, “granny flat”, buy-to-let investment, pied a terre. 

Despite their popularity, getting a mortgage on a flat or maisonette can be slightly more complicated than it is for a house, and with many different types of flats available, lenders differ in their policies on the types of property they’ll consider. It’s always best to speak to an expert who knows the market inside-out and can steer you towards providers that will be happy to finance your flat purchase. 

In this article we’ll look at the main issues around mortgages on flats, including:

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Mortgages for freehold flats vs Leasehold flats

One of the most important distinctions when it comes to mortgaging a flat is whether the property is leasehold or freehold. 

Leasehold means that you have a contract or ‘lease’ that permits you to occupy the property for a specified number of years (the ‘lease’) on behalf of a freeholder, which is usually a company. In a freehold situation, there is no external body with responsibility for the property: this falls to the owner. 

Leasehold flats: Ground rent and maintenance 

In a leasehold arrangement you’ll need to pay the company an annual fee called ‘ground rent’ to undertake maintenance and repairs of communal areas. The freeholder’s responsibility in that contract is to ensure upkeep of the property to a standard outlined within the lease.

In a freehold arrangement however, the freeholder is the ultimate owner of the property itself, so you will take on that role when you purchase the freehold along with the property. You won’t need to pay a maintenance fee, but you will need to ensure the flat is maintained as per the lease. 

Houses tend to be freehold, but flats and apartments will likely be leasehold. However, some freehold flats do exist, just as some leasehold houses do, and both can be more difficult to find a mortgage for. 

One exception to this is in Scotland because leasehold properties are virtually nonexistent north of the border. Most flats are on arrangements similar to a freehold. Many lenders who do not lend on freehold flats in England and Wales will do in Scotland.

Why is it difficult to get a mortgage on a freehold flat?

Getting a mortgage on a freehold flat can be difficult, and fewer providers are willing to accept them. This means you’re likely to be offered less favourable deals, which could mean worse rates or a bigger deposit. 

Why do mortgage lenders dislike freehold flats?

The short answer is that this type of set-up can lead to a lack of accountability for repairs and other costs, which could reduce the property’s value. Without a sole entity with responsibility for these costs, it’s easy to see how a block of flats could fall into disrepair: even if there is a lease setting out the rules, none of the parties is obliged to pay for them. 

The possibility of disputes between neighbours is increased because, for example, one person's floor is another person's ceiling. If there's a leak then both parties could expect the other to be liable.

If you’re still set on taking out a freehold flat mortgage, get in touch, and we’d be happy to refer you to a specialist advisor with experience in the field. 

Share of freehold flats

Some flats are sold on a ‘share of freehold’ basis. In this case the owners of a number of flats own the freehold jointly for the entire building (often a converted house), and are thus responsible for carrying out repairs and maintenance, and for setting up a maintenance company should they decide to do so. Share of freehold can be split between as few as two flats, with a 50-50 share for each owner, or up to four owners.

Fortunately, from a lender’s perspective Share of Freehold arrangement is treated the same way as a leasehold property and the freehold flat mortgage problems that make lenders nervous don’t apply, because the ‘company’ in which the flat owners hold shares legally owns the lease and must abide by the obligations it sets out. For this reason it is usually no harder to mortgage a shared freehold flat than a leasehold flat.

Length of lease

When buying a leasehold or share of freehold flat, the number of years remaining on the lease will have an impact on the flat’s resale value and therefore will affect the number of lenders that will consider your application

Each lender sets a minimum length of lease that they will consider, which is usually between 90 and 70 years, and rates will be less favourable the shorter the remaining term. Few will lend at all with a lease of 70 years, and hardly any will lend if the remaining time on the lease is 60 years or less. 

If you have your heart set on a flat with a short lease, you may want to find out if the seller will extend the lease or negotiate a lower price in exchange for doing this yourself before settling on a mortgage.

Am I eligible for a flat mortgage?

Eligibility criteria for flat mortgages is no different from that of any other residential property loan: you’ll need to satisfy the lender that you have sufficient income to meet monthly repayments, meet their criteria in terms of your credit history, employment and age profile, and the flat you intend to purchase must be of a construction type that they accept.

What deposit will I need for a mortgage on a flat?

Most lenders offer slightly lower loan-to-value (LTV) ratios for flats, for example they may go up to 90% or even higher on houses but only 85% on flats, meaning you’d need to pay at least a 15% deposit for a flat versus 10% on a house.

What mortgage can I afford to get for a flat?

This will depend on your income (not only how much you earn but the type of income), the size of deposit you are able to put down, and a host of other factors relating to the state of the market. Currently, most lenders cap lending at 4.5 x your salary/combined salary, some will go up to 5, and a few as high as 6 x in exceptional circumstances.

All lenders are different and some will offer more generous deals than others, which is why it’s important to shop around and work with an whole-of-market broker to home in on the best ones. All of the advisors we work with have access to the whole market, and can help you find the best products in your circumstances. 

Can I get a flat mortgage with bad credit?

Credit issues such as low credit score, IVAs, late payments, defaults and bankruptcy will contribute to raising your overall risk profile, and are likely to reduce the number of interested lenders. Fortunately, there are plenty that will still accept borrowers in most circumstances, although you may be offered higher rates. 

If you’re worried that your credit issues could make it hard for you to secure a mortgage to buy a flat, take a look at our section on getting a mortgage with bad credit, and don’t hesitate to give us a make an enquiry if you’d like us to refer you to an advisor with experience of successfully arranging mortgages for clients with adverse credit.  

Can I get a mortgage for a flat as a second home?

There are numerous lenders offering mortgages on flats as second homes. You will be subject to the same financial assessments as with any mortgage, and your existing mortgage commitments will also be taken into account and the rates on any second home mortgage are likely to be higher. 

Can I get a mortgage on a retirement flat?

If you’re planning on purchasing a purpose built retirement flat, you will usually need to find a specialist lender to arrange a retirement flat mortgage, as these products are relatively niche and not usually sold directly to the public: get in touch with us by calling 0808 189 2301 or making an enquiry if you’d like to be referred to an advisor with experience in this area.

If, however, you are looking for a retirement-friendly mortgage for a standard flat, you can usually arrange a lifetime mortgage for flats provided it has sufficient time remaining on the lease according to your lender’s policy.

Granny flat mortgages

A ‘granny flat’ or annexe is a specific class of property defined as a ‘secondary dwelling’ attached to an existing property. The main dwelling is often, though not always, owned by a different generation of the same family. Getting a mortgage for a granny flat is a complicated process due to the number of parties involved and often due to the age of the older resident(s).

Another issue is the granny flat’s intended use: if the ‘annexe’ is deemed to be completely self sufficient with its own kitchen facilities for example, it may be necessary to take out a buy-to-let mortgage, as it could in theory be rented out. 

For this type of arrangement, borrowers need to seek a mortgage for a house with a self contained flat. We strongly recommend speaking to an expert advisor for the best solution.

Mortgages for buy to let flats

Thinking of renting your flat out? Mortgage options are plentiful in this area with most major lenders offering buy-to-let (BTL) products on flats, subject to the usual caveats of BTL lending, which generally means higher rates, lower LTV ratios and most are offered on an interest only basis. In the case of buy to let mortgages for new build flats, criteria will be even stricter.

Different types of flats

Another aspect of getting a mortgage on a flat that can complicate matters is the fact that there are so many different kinds of flats. The type and age of the building, where it’s situated and even the number of bedrooms can directly affect lenders’ generosity.

Can you mortgage a flat above a shop?

Many flats are located above commercial premises, but it can be harder to get a mortgage on this type of property. Lenders have different policies on which premises they’ll consider (some accept flats above certain retail outlets but not above bars or restaurants for example), or whether they accept them at all: see our guide to mortgages for flats above shops.

Mortgages for new build flats

Getting a mortgage on a new build flat can present some challenges for a variety of reasons. First, it’s harder for lenders to do an accurate valuation on any new build, so many want bigger deposits to protect against a possible drop in value after the sale. For a new build flat, a deposit of 30% or more is not unusual. Added to this, many new build flats are in high rise blocks, which will exclude some lenders leading to potentially higher rates. 

However, new builds tend to have more incentives available to buyers such as the Help to Buy scheme for example, and in some cases developers may offer to chip in to cover some of the higher costs such as part of the deposit. 

New build BTL flat mortgages

These can be even trickier to come by: some lenders exclude new builds for their buy-to-let flat mortgages, and those that do lend on BTL new builds tend to impose strict criteria and large deposits of 25% or more. 

Mortgage for conversion flat

In many cases getting a mortgage for a conversion flat should not pose any specific problems, but if it’s a recent conversion, lenders are likely to view it in the same category as a new build, and will want to see evidence that the works have been carried out within regulations and to a satisfactory standard. 

Each lender will have its own set of standards, so it helps to work with an expert broker who can identify the most suitable providers.

Can you get a mortgage on a flat in a high rise block?

High rise flats can be tricky to mortgage, and it’s worth being aware that many lenders consider flats on a 5th floor or higher to be ‘high rise’. 

Each lender will have its own attitudes towards high rise flats and any offer they make will be subject to survey. So if you’re buying a modern apartment in a smart complex, you’ll find it easier to get a mortgage than if it were in a grimy old block where resale value is likely to be an issue. It can also be difficult to get a mortgage on a concrete flat, which some lenders view as ‘non standard construction’.

As a general rule of thumb, most lenders will require there to be a lift in the block if there are 5 or more floors.

Non-standard construction flats

Another factor that can affect your chances of getting a mortgage for a flat is the type of block or building it’s in or even the materials it’s made of. This can affect whether a mortgage is offered or not, for example properties made out of wood or timber, high rise flats (as above), concrete blocks, corrugated iron constructions or having asbestos present.

All lenders are different in what they’ll accept, so having one or more of these issues shouldn’t rule you out. For more information, see our guide to non-standard property.

Mortgages for small flats

Some lenders impose minimum size limits on properties they will mortgage, and this will often apply for those looking to take out a mortgage on a 1-bedroom flat or bedsit/studio. 

This is ultimately due to legal definitions of what constitutes a living space: anything below 12 sq m is in breach of the 2004 Housing Act, and of those lenders that do accept studio flats, virtually all specify a minimum flat size for mortgage of 30 sq m.

Mortgages for flats in London

Flats and apartments in major cities especially London can reach very high values compared with elsewhere with prices that can run into the millions, so a lender that caps its maximum loan size for flats relatively low won’t be much use if you’re purchasing a three-bed maisonette in a trendy London suburb, for example. 

Another consideration if you’re taking out a London flat mortgage is that the capital’s flats also tend to be smaller, so if you’re purchasing a one-bed you might fall foul of the restrictions that some lenders place on ‘cosier’ properties. 

Can I get a mortgage for a holiday flat?

Provided you meet lender criteria it should be possible to get a mortgage for a holiday flat, but these will be different depending on whether you intend to rent out the holiday flat or reserve it solely for your own and your family’s use. If it’s being used for rental, you’ll need a BTL mortgage, otherwise it will usually be classed as a second home. Some lenders may offer a more flexible holiday flats mortgage: speak to an expert for advice if you’re interested in this type of product. 

Find a flat mortgage calculator

You should be able to use any standard mortgage calculator to get an idea of what your flat mortgage repayments will look like. Don’t forget that these tools are for illustrative purposes only and each lender’s affordability calculations are unique to them. A professional advisor can give you more accurate advice. 

Flat mortgage lenders

The vast majority of high street lenders offer mortgages for flats, but as outlined above, their attitudes towards types, locations and sizes of flats, new builds, lease lengths and other features vary, so depending on your circumstances, this can result in having a slightly smaller pool of lenders overall when compared with mortgaging a house. 

Freehold flat mortgage lenders

Most lenders do not offer mortgages on freehold flats: well known names such as Lloyds, Yorkshire Bank, and Halifax do not mortgage freehold flats at the present time. 

However there are a few that will consider it: RBS and NatWest don’t usually accept freehold flats, but they may make an offer if the loan is less than 95% of the valuation and there is an acceptable maintenance agreement in place. 

Similarly Nationwide won’t lend on most freehold flats, but will make an exception in certain circumstances. Speak to an expert to get access to the most up-to-date information on mortgage lenders for freehold flats.

Speak to an expert on flat mortgages today!

"If you have questions about mortgages for flats and want to speak to an expert for the right advice, call Online Mortgage Advisor today on 0808 189 2301 or make an enquiry online.

Then sit back and let us do all the hard work in finding the broker with the right expertise for your circumstances. We don’t charge a fee and there’s absolutely no obligation or marks on your credit rating.

Updated: 18th October 2019
OnlineMortgageAdvisor 2019 ©

FCA disclaimer

*Based on our research, the content contained in this article is accurate as of most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The info on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs. Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.