Studio Flat Mortgages Explained

Studio flats are compact properties that typically incorporate the living area, bedroom and kitchen in a single space.  They are popular with renters in central locations and people looking to get on the property ladder in areas where prices are prohibitively high.

Despite what you may have heard, a studio flat can be bought with a residential or buy-to-let mortgage.

In this article, we’ll explain why it can sometimes be difficult to get a mortgage on this type of property, what you can do to give your application the best chance of success and how a broker can help you get approved.

Can you get a mortgage on a studio flat?

Yes. The good news is mortgages on studio flats are not rare. However, each lender has their own view on these properties, with some choosing to avoid them altogether. And you may pay a higher rate than you would if buying a more ‘standard’ property.

When determining lending policy, mortgage providers are concerned with resale value. If they have to repossess the property, they want to be able to sell quickly, easily and without making a loss. Lenders who view studio flats as undesirable are less inclined to lend to them.

So, it is not always easy to get a mortgage on a studio flat – unless you know the right places to look and where to turn for the right advice.

Lending criteria for these properties

In addition to their standard eligibility factors, mortgage providers that lend on studio flats also have underwriting criteria for this property type. Some of these will relate to the property, and some to the borrower.

Factors that concern the property

In many cases, mortgage providers will emphasise the surveyors’ comments regarding the likelihood of a resale than they might on other property types.

Issues likely to limit the number of providers who will approve your loan include:

• The size of the property: Most lenders will not lend on any property smaller than 30 square metres. Others draw the line at 50 square metres, while some specialist lenders will consider each property on its own merits. Areas like London are popular for people seeking ‘micro-homes’, for example, and this is a developing market in the capital.
• Property configuration: While a studio typically includes one living space, a lender’s minimum size for lending encompasses all properties. So, some providers will effectively assess any flat measuring, for example, 30 square metres, as a ‘studio’. Many, though, are more likely to approve a loan for a property with a separate kitchen area.
• Location: Apart from the geographical location (e.g., city centre), lenders will also be interested in the studio flat’s surrounding area. A flat above or adjacent to a commercial premises will be a concern, particularly if the commercial activities include noise (e.g., nightclubs) or smells (e.g., takeaways) that might cause an issue with any resale. That said, there are lenders who will consider mortgages for flats above commercial properties.
• Construction: Non-standard constructions are always a concern for lenders. If the property, or the building in which it resides, is built of anything other than bricks and mortar, you may need to speak to a lender specialising in non-standard construction mortgages.
• Height of the building: Flats in seven-storey or bigger buildings will be harder to obtain a mortgage for as fewer lenders will consider your application. However, if the building includes a lift, your pool of potential lenders will increase.
• Property value: Some lenders will only lend on studio apartments valued at £150,000 and above.
• Self-contained: Approvals are easier for self-contained properties with private facilities.
• Length of the lease: Most flats are leasehold properties, and the shorter the lease, the harder they are to sell.

Factors that concern the borrower

As studio flats are deemed higher risk than other properties, lenders can also have strict eligibility criteria for borrowers.

These include:

• Credit history: Each lender views bad credit according to their risk profile. It’s not impossible to get a mortgage with recent or serious adverse, but these factors will significantly reduce your choice of lenders. As studio flat mortgages are harder to come by anyway, if you have any bad credit history, you’re strongly advised to speak to a specialist broker.
• Deposit amount: Many lenders will insist on a deposit of at least 10% (in some cases up to 35%) for a studio flat. If you have been saving for a 5% deposit to get you onto the property ladder, don’t be too disheartened by this, as a handful of lenders will accept a 5% deposit – and even some will approve a 100% mortgage. A bigger deposit will give you access to more lenders and, subsequently, more favourable rates.
  If the increased deposit proves an issue, you may want to consider a family offset mortgage if family members are willing to use their equity to support your application.

How a broker can help you get approved for a studio flat mortgage

It’s always worth speaking to a mortgage broker when looking for a mortgage, but this is particularly important when you’re in the market for a niche product like a mortgage for a studio flat, as your choice of providers is already limited.

Each lender has their own criteria when it comes to this type of lending. A broker who specialises in this property type will quickly whittle down your options so you can focus on the features and benefits of those products you have a realistic chance of being approved for.

They have deep working relationships with lenders who offer mortgages for studio flats and might even be able to secure you an exclusive, broker-only deal.

Which lenders will consider your application?

Some big-name lenders such as Bank of Ireland and Virgin Money will not accept applications for studio flats, but there are plenty of household names that will, including:

• Barclays
• Halifax (applications only accepted via a broker)
• HSBC
• Metro
• Nationwide
• Santander (applications only accepted via a broker)

The brokers we work with have inside knowledge of studio flat lending criteria. They will help you avoid the plethora of potential problems and focus on the lenders and products suited to your circumstances.

Getting a buy-to-let mortgage on this property type

A buy-to-let studio flat can be a good investment in a city centre with an active rental market. And there are plenty of lenders willing to approve this type of loan. However, most providers have strict criteria, varying significantly between lenders. So, it’s difficult to put together a definitive list of factors to be aware of.

Some providers assess applications on a case-by-case basis, and these can be the best ones to approach in complex circumstances. However, getting approved relies on knowing how best to package your application.

The best rates are typically offered by lenders who take on less risk, so those who insist on a deposit of 30% will usually give you the best deal – if you match all their criteria. The projected rental payments must typically equate to 125% of the monthly mortgage repayments.

Get matched with a mortgage broker who specialises in studio flat mortgages.

Studio flat mortgage lending is a complex market. As such, finding a broker with experience in this niche is crucial to a hassle-free experience that ends with you getting the best deal.

Our broker matching service will assess your details and those of the property you are looking to buy before putting you in touch with an experienced broker who has a track record of getting the best deal for people in your position.

Call 0330 818 7026 today or enquire online to speak with a studio flat mortgage broker.