Sam Dunn: 'Will my lender offer a loan on a high-rise flat?'
Wednesday 17 June 2009
Question: I've put in an offer of £315,000 on a fifth-floor flat in London. It's in a fairly modern block in a genteel area but I've been told by the vendor (who has accepted) that I'll need a big deposit if I'm to buy. He claims, from his own experience, that few lenders offer loans against living so high up. I've heard this is the case for the top floor of an old shoddy post-war block of flats but this is totally different. Should I be worried?
Answer: High-rise has always carried a hint of high risk, and it's largely down to recent history.
The monolithic horror of poorly-designed 1960s tower blocks infected with so-called 'concrete cancer' – ageing, exposed concrete that crumbles as water freezes within it and literally destroys property value – still echoes down the ages as banks remain reluctant to lend against such homes.
At the heart of any loan is a property's resale value in a worst-case scenario of a defaulting or bankrupt borrower; in other words, can a lender sell it on easily?
And fears of an unloved – possibly dangerous – box apartment in a grimy skyscraper being impossible sell still give lenders the jitters, warns Melanie Bien at broker Savills Private Finance.
"High-rise flats are off-putting to lenders because many are ex-local authority with a lot of council tenants still living in the block rather than owner-occupiers; the construction of the building - reinforced concrete, for example – and the low resale value," she says.
Historically lenders tend to consider council tenants as less desirable neighbours than owner-occupiers as, without a long-term financial stake in the property, it is (often incorrectly) assumed that less care and attention will be taken of the flats and general state of the property – further depressing the property's value.
As a rule of thumb, the higher the storey, the harder it gets to find finance as bank numbers prepared to lend shrink.
However, while lenders should be much happier with more recent modern buildings, such as yours ,stretching into the sky, each lender will still assess the risk differently.
David Hollingworth of broker London & Country warns that plenty of lenders still harbour reservations about lending on flats that lie above the third or fourth floor.
"For example, Alliance & Leicester say that they cannot lend against flats in a block of more than six storeys and without a lift; but Cheltenham & Gloucester don't have a 'maximum number of storeys' rule although local authority blocks are unacceptable over four storeys," he says.
The key factor is being 'subject to survey'. Hollingworth says: "it's all about being 'subject to survey'; the bottom line is that if their valuation of your flat raises concerns – over its construction or if it's a local authority block – then the lender may choose to decline lending."
Andy Montlake of broker Coreco warns that being a newish-build flat might affect the valuation too.
"As with everything at the moment thanks to the credit crunch and recession, things have changed; many lenders are concerned about accurate valuations on newer-built developments."
But if, as it sounds, your flat is as desirable as you say it is, then you shouldn't have too many problems; as long as the lender is happy about its likely future value.
"If you buy in a nice block in a good area that isn't ex-local authority, and the lender is happy with the valuation, then I can't see that your application will be a problem," Bien adds.
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