While there’s always been an attraction to city-centre living and cityscape views, it can be tricky to get financing for flats, especially if they’re in a high-rise building. High-rise apartments may be ideal for first-time buyers as they’re often cheaper than standalone houses.
However, from a lender’s perspective, they can be perceived as high risk, either for fire hazard reasons, because they’re sometimes built with non-standard materials, or for other reasons. It’s important to do your homework and know what lenders will and will not finance.
The Topics Covered in this Article Are Listed Below:
What is a High Rise Flat?
There isn’t a precise definition of “high rise” that lenders share. Most tend to think of buildings that are 7 floors or more in height, or buildings that have an elevator. High-rise flats rose to prominence as council buildings – “tower blocks” - in the 1960s and 70s as an affordable means of providing housing for rising numbers of urban dwellers. More recently, more upmarket high-rise apartments are going up across the UK.
Can You Get a Mortgage for a High Rise Flat?
It’s slowly becoming more possible to find a mortgage for a high-rise flat. Some lenders will refuse to lend on an apartment in a building over 6 or 7 storeys high, although there is more flexibility in London as the table below shows.
|Mortgage Lender||Maximum Height (Storeys)|
|Buckinghamshire Building Society||4 (20 in London)|
|Kent Reliance||6 (12 in London)|
|Leeds Building Society||Subject to valuer's comments|
|Metro Bank||Subject to valuer's comments|
|NatWest||Subject to valuer's comments|
|Nottingham Building Society||10|
|Platform (Cooperative Bank)||10|
|Santander||7 (more in London)|
|TSB||Subject to valuer's comments|
|Virgin Money||Subject to valuer's comments|
New developments in the capital pose far less of an issue for mortgage lenders, as there’s always high demand and no significant concerns about resales. Outside London it’s a different picture, as the units found in other cities can lose value whenever there is a downturn in the economy.
Mortgage lenders recognise that as cities are becoming more populous, there is more pressure on developers to build up rather than out. This is reflected in the number of lenders who make their decision on mortgage applications based on the valuation report, rather than floor count. This is part of a growing trend, as mortgage providers’ views evolve in line with the skylines of many of the UK’s cities.
In buildings with 7 or more floors, even where the lender’s rules permit them to offer mortgages, they may prefer that you buy a flat below the 7th floor. For buildings with 5 or more storeys, most lenders will also require that there’s a lift.
It’s important to note that many flats in high-rise new builds lose their value after they’re built, leaving their buyers in negative equity. Buyers aren’t likely to pay more for a flat when they can buy another unit next door. In the longer term, flats can take longer to sell depending on their location.
What Deposit Do I Need to Buy a High Rise Flat?
For standalone houses, it’s possible to get a 95% loan-to-value (LTV) mortgage. However, some mortgage providers are cautious about lending that much on high-rise flats because of their higher risk level. Instead, they may set the minimum deposit at 10% or even 15%. The issue is, that if the borrower defaults on their payments and the lender must repossess the flat, they may struggle to resell the property and recoup their losses as quickly as for a standalone house
Which Types of High Rise are Mortgage Friendly?
Flats in buildings made of concrete are difficult to finance. This is because lenders consider concrete construction to be non-standard – not made of bricks and mortar. Any property falling into this category is considered higher risk and perceived as harder to maintain, insure and resell. That said, you can still find non-standard construction mortgages from specialist lenders.
Mortgage applications for ex-council flats that are accessed by external decks – rather than internal hallways – are also often rejected. Mortgage providers view these flats as unfinanceable thanks to the high service charges imposed when lifts need to be replaced, when common areas need maintenance or external cladding needs replacing. This negative view tends to reduce demand to buy ex-local council flats, which in turn adds to the risk from a lender’s perspective.
The size of the apartment also matters. The minimum space standard for most home types in the UK is 37 square metres. If an apartment is less than 30 square metres (323 square feet), lenders will typically not approve a mortgage application.
Finally, location. Mortgage lenders are more amenable to mortgage applications for high-rise flats in populous, high-growth urban areas such as London, Manchester, Glasgow, and Birmingham.
If you’re interested in buying a flat in a high-rise building near you, get in touch with one of our experts. We can get in touch with lenders on your behalf to find out if they have any information on whether high-rise flats near you have been bought with a mortgage.
Why Else Are Lenders Cautious About Mortgages on High Rise Flats?
In the early to mid-2000s, a building spree led to 1000s of new-build apartment blocks being built around the UK. Often, flats in these blocks were sold to buy-to-let investors. The housing market crash of 2008 led to investors struggling to find tenants and unable to cover their mortgage payments. The prices for flats in these new builds collapsed and many lenders faced significant losses. Many lenders are still scarred by this experience.
Many new developments also tend to have a significant number of rental tenants and Airbnb lettings. In the absence of owner-occupiers, housing blocks can fall into disrepair with low maintenance levels. This can have a negative impact on unit values and resale prospects. The sense from mortgage lenders is that with an abundance of new towers and developments, the market may become over-supplied.
Finally, mortgage lenders are cautious about applications that relate to properties about shops or close to commercial areas. There may be concerns about noise pollution and fumes that would lead to a rejected application.
What Does Lender Exposure Mean?
Mortgage lenders try not to lend to many flats in the same building, with a typical maximum of approximately 20%. This applies more to flats in high-rise buildings, where there can often be many flats in one building. As there are fewer mortgage lenders offering finance for high-rise buildings, there is a greater likelihood that your mortgage lender has already provided mortgages to owners of other units within the building. Even if your eligibility and affordability criteria are met, they may not make you an offer for fear of being over-exposed in the building.
Does the Remaining Lease Length Matter?
Leases under 70 years can be off-putting to mortgage lenders as extending the lease will increase in cost as the number of years remaining draws down. Many lenders will need to see a minimum lease of 85 years on the application, with 60 years remaining at the end of the mortgage term. Some high street lenders will consider a mortgage with as few as 40 years left on the lease at the end of the mortgage term.
Lenders can be cautious if there are refurbishment works planned soon, which may result in a hike in maintenance charges. As part of the valuation exercise, they’ll look to see if major repair works are planned soon.
What About Ground Rents and Service Charges?
Mortgage lenders will require information about ground rent or service charges. Ground rent refers to regular payments made by the leaseholder to the freeholder as defined under a lease agreement. Ground rent is created when a freeholder leases land or property to a leaseholder on a long-term basis.
Meanwhile, service charges are imposed by landlords on their leaseholders to pay for the upkeep of the building, including repairs and building insurance. Common practice is for service charges to be collected each year in advance. Typically, service charges for flats tend to be in the region of £1,000 to £2,000 per year – however, they can exceed £2,000 for new-build flats and flats in London.
Mortgage providers will factor these figures into their affordability assessment. You’ll therefore need to do your research to find out what these charges are and add them to your list of planned expenses.
Some mortgage lenders put a ceiling on how much ground rent they will accept on high-rise properties, either as a fixed amount or a percentage. They may impose conditions on the maximum acceptable ground rent inflation.
From 30 June 2022, the government has banned landlords from charging ground rent on new-build properties.
Can You Get a Mortgage on a High Rise with Bad Credit?
Getting a mortgage on a high-rise flat with a poor credit rating might make a challenging task even more difficult. If you have a County Court Judgement (CCJ), you’ve been bankrupt, defaulted on your credit card and debt payments, or if you’ve previously had your home repossessed, you may not find many mortgage lenders willing to take you on.
What About Cladding?
The Grenfell Tower fire tragedy in 2017 raised awareness of inadequate cladding and fire protection in high-rise dwellings. The ACM cladding used at Grenfell has now been banned by the government. Even so, Grenfell has had a knock-on effect on banks and building societies, who became more cautious about financing flats in high-rise buildings.
For tall buildings, lenders will now require an External Wall System Fire Review certificate (EWS1). This certificate proves that the building’s external cladding has been adequately assessed and meets the minimum fire safety requirements. When buying a flat in a high-rise development, buyers should be aware of any potential cladding issues and do their research, asking whether the building has an EWS1 certificate in place.
Buy-to-Let Mortgages for Blocks of Flats
You might be in the market to buy a block of flats with the idea that you would rent units to tenants. In this case, you might consider taking out a buy-to-let mortgage. This is known as a “multi-unit freehold mortgage” and is not offered by all mortgage lenders. Lenders who do have this mortgage product tend to limit the number of residential units the property can include, typically between 5 and 10.
On the other hand, if you want to buy a single flat within a high-rise structure for the purposes of renting it out, so long as the building is not made of concrete or ex-council, you may be able to find a standard mortgage product.
Can I Get a Commercial Mortgage for a Block of Flats?
If you’re looking to purchase a block of flats with more than 10 residential units, it may not be possible with a multi-unit freehold mortgage. You may wish to consider approaching a specialist commercial lender who could offer you a business mortgage on the entire building instead. Commercial mortgages have different eligibility criteria in comparison to residential mortgages. Lenders will want to see that you have experience with commercial properties previously, with at least 12 months experience as a buy-to-let landlord.
For large properties over 40 floors, it's typical for the developer to own the freehold, and different investors take out buy-to-let mortgages on groups of units within the structure. Often, tall residential buildings can have a mix of buy-to-let owners and single residential unit owners, each with their own leasehold.
For more information, or to get in touch with one of our experts, call us on 0330 433 2927 or enquire online today.
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