The property market is extremely buoyant at the moment and there are many people looking to buy and sell studio flats.
Studio flats are often attractive to buyers as they tend to be cheaper compared to other property types.
The difficulty with buying a studio flat is that mortgage lenders typically have requirements that can exclude them as being mortgageable.
This means that for most, a mortgage on a studio flat can be incredibly hard to obtain.
The great news is that there are lenders with flexible criteria around studio flats and you shouldn’t give up hope of buying one.
This guide breaks down everything you need to know about buying a studio flat and some of the complications you may encounter.
Studio Flats and Leasehold Properties
Both studio flats and leasehold properties have different mortgage criteria compared to freehold properties.
With studio flats in particular the square metreage is a concern for most lenders and many won’t lend on a flat that is smaller than 30 sq. metres.
There are some lenders who don’t have a minimum square metreage in their criteria.
Another concern for lenders is the remaining amount of time left on the lease.
Lenders will typically have a minimum number of years that need to be on the lease at the time of purchase in order to lend money.
Leasehold properties can also have various restrictions put on them by the freeholder such as service charges and if anything unusual crops up during the legal process, lenders might withdraw their mortgage offer.
- Most lenders have a minimum of 30 sq. metres to provide a mortgage.
- The amount of years remaining on the lease will be taken into account by lenders.
- Lenders may also be cautious about restrictions placed on the leaseholder by the freeholder.
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Criteria for Getting a Mortgage on a Studio Flat
When assessing a mortgage on a studio flat a lender will make sure it meets their minimum sq. metreage requirements.
On rare occasions, lenders may not have a minimum.
They will look at the lease length and whether it meets their requirements as well as any limitations and restrictions on the leaseholder.
Aside from those things specifically, there will also be other considerations that a lender will make when assessing whether to lend on a studio flat.
For example, some studio flats are above shops or near commercial space which can be unattractive to lenders.
Studio flats above restaurants can be very difficult to get a mortgage on because they are hard for lenders to sell on in the event of a repossession.
This is due to noise and air pollution which could result in the property being unattractive to potential buyers.
When a lender creates their mortgage criteria for studio flats, they are looking to reduce the risks of those types of mortgages.
The general rule is that if anything unusual or problematic crops up, a lender might decide that the mortgage is too risky because they might not be able to recoup their money.
This is especially the case if the problem areas can put off potential buyers and a lender decides they will struggle to sell the property in the event of a repossession.
What Affects Your Ability to Get a Mortgage on a Flat?
The above criteria will be taken into account, but other than that you will still need to have the standing to get a mortgage.
You will need to demonstrate:
- You have the income (and can document it) to pass the affordability criteria.
- You have a credit score that meets the minimum for your chosen lender.
- The property also meets a lenders’ general property requirements.
- You have the required deposit.
Affordability Criteria Requirements
One of the most commonplace myths in the mortgage industry is that all lenders will allow you to borrow 4.5 times your annual salary.
For example, if you have an income of £30,000 you will be able to borrow £135,000 on a mortgage.
This may not be the case. First and foremost, some lenders have stricter or more generous income multiples and there are lenders on the market that allow you to borrow 5 times your annual salary.
Aside from income multiples, affordability is actually much more complicated.
Lenders will adjust your affordability according to how much debt you have, what your monthly outgoings you are and even things like overdraft usage.
When all of these factors are combined a lender will provide an amount of how much you can borrow.
Even with lenders using the 4.5 times multiple, you will probably find that the loan amount is different to the actual value of your income multiplied.
Credit Score Requirements
Lenders have different requirements when it comes to your credit score. Some lenders are very strict and only like borrowers with a higher credit score.
Other lenders are far more lenient and offer mortgages to poorer credit score borrowers.
There are even lenders that will consider lending to those who have CCJs or bankruptcy in the past.
You should be aware of your credit score when applying for a mortgage as a decline on your credit report from a lender can impact subsequent applications.
There are various services online for checking your credit score and it is important to remember that different lenders use different credit reference agencies.
A good credit score checker is CheckMyFile which enables you to compare the information held about you across all of the credit reference agencies.
Interest rates applied to mortgages are representative of the risk a mortgage has to a lender. You will probably find that the lower the interest rate, the higher the credit score requirement.
This isn’t a definitive rule, but it is pretty typical.
Adverse credit mortgages tend to have higher interest rates and if you have a poor credit score you should take this into account when budgeting for a mortgage.
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General Property Requirements
All lenders have general property requirements and some of these can be a little unusual.
A property will need to be constructed in a way that lenders deem acceptable. A property considered as ‘Standard Construction’ is normally built of brick with a slate or tile roof.
Some properties are constructed of other materials like concrete which can be problematic for lenders as certain types of concrete degrade and get what’s known as concrete cancer.
Building societies can be even more strict about the properties they lend on with some stipulating that the property has to be in a certain area for them to consider it.
For example, a building society might only lend on properties in their local area.
General property requirements are especially important when looking to buy a studio flat as it can sometimes be the case that flats are built in a non-standard way such as concrete tower blocks.
How Do I Check My Affordability?
To get the best idea about affordability for a mortgage you should talk to a broker who can identify your most suitable lender and then use their bespoke affordability calculator.
By doing this you will know how much the most suitable lender can offer for a mortgage.
If you’re in the early stages of looking for a mortgage, then there are online affordability calculators you can use.
The trouble with online affordability calculators is that they often don’t go into much detail about your income and expenditure and provide a headline figure based on assumptions.
You are likely to find that when you approach a lender and use their affordability calculator that the amount you can borrow will be different to most online affordability calculators.
All lenders approach affordability in different ways.
Some will be concerned about certain financial obligations such as childcare costs and others will be far less concerned.
Your income will also be treated differently based on which lender you choose.
Discussing your situation with a broker will allow you to get an accurate affordability calculation and they can look at lenders that are favourable to your exact circumstances.
Boon Brokers also provides a mortgage affordability calculator that gives you an approximation of how much you can borrow before you make an enquiry with us.
What Types of Mortgages Are Available on Studio Flats?
If a studio flat is mortgageable based on property criteria, you will find that there are a number of mortgage products available to you.
You can purchase a studio flat on a residential basis or buy to let basis.
Studio flats can even be purchased using limited company buy to let mortgages if the flat itself meets the lender’s criteria.
Within each category of mortgage product there are different options.
For example, if you opt for a residential mortgage, you might find that you have the choice between a fixed rate, tracker rate or variable rate mortgage.
Boon Brokers has expertise in identifying which type of mortgage is most suitable for you, so if you’re unsure of the type of mortgage you need or what type of interest rate is best – discuss those queries with us today to get answers regarding your most suitable option moving forwards.
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How Long Will a Mortgage Application Take?
With studio flats you might find that the process of applying and getting a mortgage offer is delayed compared to other types of property. This is for a number of reasons:
- Lenders may be concerned about the amount of sq. metreage which means a ‘drive by’ survey, which is often automated, won’t be an option. Surveys will need to be conducted in person in cases where sq. metreage is a concern.
- Property searches conducted by conveyancers are typically longer because solicitors will need to check who the freeholder is and what restrictions are contained within the lease.
- If the length on the lease is not sufficient for the lender this can mean a lender will decline the application or ask the current owner/freeholder to extend the lease.
- Surveys will also look at the surrounding area and be especially focused on whether restaurants or commercial buildings are in close proximity to the studio flat.
When making the application you should find that the time to complete the form is comparable to a standard mortgage application.
Once the application has been submitted the lender will conduct checks alongside the conveyancers who will provide additional information to both you and the lender.
Using a Broker for Studio Flat Mortgages
Using a broker in both instances (mortgaging and remortgaging) will streamline the process as a broker will identify the lender that is best for you and will know what documentation the lender will ask for in advance.
This allows you to prepare as much as possible prior to a mortgage application which should speed up the overall process.
A broker will also be able to offer advice after the application is submitted and help you if further documents are requested from the lender.
Boon Brokers has arranged countless studio flat mortgages and although they can sometimes be tricky, we have the expertise to get the mortgage across the line in most cases.
Studio flat mortgages (and leasehold mortgages in general) can be trickier than standard freehold mortgages.
There will likely be additional criteria that will need to be met to get a mortgage.
By using a broker, you can get information about which lender is best for you, how much you can borrow and what requirements will need to be met.
Boon Brokers is a whole of market mortgage, insurance and equity release broker. Boon Brokers is an expert in placing studio flat mortgages so call us to discuss your mortgage goals today.