Lenders tighten the rules on ex-local authority properties

Make sure you can get a loan on your new home before making an offer, warns James Daley
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The Independent Online

Getting a mortgage to buy an ex-local authority property has become increasingly difficult in recent months, as banks and building societies tighten their lending criteria after the recent housing boom and subsequent slowdown.

The development has been a frustration for many first-time buyers, who having struggled to afford the inflated prices of period properties,have been increasingly turning to former local-authority flats as a means of getting a first foot on the property ladder.

Although there are a handful of downsides to buying ex-council properties - such as the fact that they seldom come with a private garden and tend to have unpredictable annual maintenance charges - their spaciousness, compared with period properties of the same value, is a big attraction.

In my area in south London, for example, I found that for the same price as a poky one-bedroom flat in a Victorian terraced house, I could buy a roomy two-bedroom property in a nearby ex-local authority block.

The problems only began when I started trying to find a lender that was happy to agree a mortgage for my partner and I. Lenders are naturally more cautious about offering mortgages on ex-local authority properties, as when the housing market falls, these are the properties that tend to fall in value first and fastest. And although any good mortgage broker should be aware of the features which lenders are wary of, many are not as on the ball as they should be.

Having received a preliminary mortgage offer through my mortgage broker from Bristol & West, I later discovered that the property I was buying fell foul of three criteria which they expect property to meet when lending on ex-local authority flats. The first of these was the number of storeys in my block.

Like many other lenders, B&W said it was uncomfortable with lending on a property with more than four floors including the ground. And although it said it might be able to make an exception for my block (with five storeys), my flat went on to fail two of its other tests.

The proportion of the block that is privately owned was the second factor that B&W, like some other lenders, was wary of. While some lenders are satisfied with 50 per cent of a block being privately owned, B&W looks for 75 per cent. A third no-no for B&W is flats that have access from a balcony or open-decking area (common with many of the council flats built in the post-war period).

Fortunately, most lenders do have some flexibility in their lending criteria. If your block is 70 per cent privately owned rather than 75 per cent, this alone may not be a deal-breaker. However, if - like me - your property falls foul of all three criteria, finding a mortgage can be hard work. Borrowing money to buy a flat in a tower block can often be particularly challenging.

After being told by B&W that my mortgage had been approved and then rejected several times, there were six weeks of indecision before I was finally given a rejection. By that stage, I'd missed out on several of the other best mortgage deals available on the market.

To avoid these sort of dilemmas, check which lenders will be willing to give you a mortgage for a specific property, before you put your offer in.

Lenders prepared to take on former council flats include Nationwide, which will lend on most ex-local authority properties on the condition the block is well maintained, and Britannia, which is happy to lend in tower blocks, as long as they are at least 80 per cent privately owned. Halifax says it will look at each flat on its own merits. Yorkshire Building Society will lend on blocks of up to six floors.

Also check whether there are any scheduled maintenance works on your block. Unlucky private owners of ex-local authority flats have in recent years found themselves landed with bills running into tens of thousands of pounds shortly after buying their property, due to the local council's plans to replace the roof or the lift, or to undertake a complete redecoration of the block.

Although ex-council flats typically come with a maintenance charge of up to £1,000 a year, this can multiply in a year when the council decides to undertake major works. Although any improvements should increase the value of your property, these charges can be crippling. If you find out about any pending works in advance, however, you may be able to negotiate the property price down.

Looking into the cost of insurance is also important before you buy an ex-council flat. Buildings insurance will usually be covered by the council and included in your maintenance charge. However, your contents insurance may be higher depending on where your new property is located. With the home-insurance market being very competitive these days, however, you're likely to find a good deal if you shop around.

At a time when property prices are inflated, ex-local authority properties provide an excellent opportunity for first-time buyers to get on the ladder, and there are still a handful of lenders that will be happy to help wherever you're buying. But it's crucial to do your homework first.