Lenders look down on high-rises
Securing a loan to buy a fashionable penthouse can be fraught with difficulty, reports Stephen Pritchard
Wednesday 15 March 2006
High-rise buildings are more popular than at any time since the Sixties. The image of dreary, concrete tower blocks has given way to the ideal of a spacious penthouse with commanding views.
Tall buildings have "undergone something of a renaissance in the past two to three years", according to a report by the property consultants EC Harris and Knight Frank.
And it is not only in London where flats on upper storeys can command £1m or more. Some banks and building societies, however, will not arrange mortgages on properties with more than seven floors; some refuse applications from buyers in buildings with four or more floors.
Others apply complex criteria, including whether the block is council-owned, what construction materials were used and whether the front door opens on to a balcony or walkway.
These criteria were often set in the Seventies or Eighties, when few tall buildings, other than local authority blocks, were residential. That has changed, both as a result of new construction and of the conversion of existing commercial and industrial buildings into upmarket flats.
"Some lenders have not changed their credit policies for some time, so anything with more than six floors could throw up a caution," says Simon Jones, director at mortgage brokers Savills Private Finance. "The property might be 15 floors and have shops beneath - which some lenders are wary of - but have flats selling for anywhere from £250,000 to £1.25m."
Developments in city centres have driven this demand for upmarket, upper-storey living. Outside London, urban regeneration and new-build schemes in Birmingham, Manchester, Leeds and Bristol include plenty of developments of four storeys or more.
These are typically high-specification builds or conversions, often with on-site gyms, restaurants, shops or office space. The schemes are often topped with a handful of large and expensive apartments.
Even former local authority towers are becoming attractive options for owner-occupiers. Sometimes this is by choice: Trellick, a tower block in west London designed by Erno Goldfinger, has become a fashionable place to live.
The Barbican Centre, in the City of London, originally built as affordable housing, has long been the exception to the rule that concrete towers are no-go areas. Privately owned flats on the estate now change hands for significant sums.
However, lenders will often have other criteria that affect whether they will agree a mortgage on a council block. Perhaps more important than the height of the building is the proportion of flats in private hands.
Some lenders provide mortgages for blocks that are 50 per cent or more owner-occupied. Others insist on 70 or 80 per cent private ownership. Lenders might also have concerns about buildings insurance. This is usually part of the service charge, but the policy might not meet a lender's requirements.
Lenders have also been cautious about buildings that are in private hands but where the local authority is the freeholder. This can include period properties.
Mortgage brokers say this is less of an issue than it was a few years ago. But they point out that one reason for lenders' caution - the unpredictable bills faced by private flat owners for repairs - is still an issue. Anyone buying into a local authority block should check for major planned repairs, and be willing to use the plans to negotiate a lower purchase price.
Lenders should discuss potential problems at a property with buyers before they apply for a mortgage. Sometimes if a property fails on one criterion, but is otherwise sound, a loan might still be granted.
Much will depend on the resale value of the property; and that, of course, depends on the location. A conversion of a large commercial building in a city centre is less of a risk to the lender than a former council property on a council estate, even if the private property has more storeys.
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