Lending criteria will differ from provider to provider and vary based on the risk approach. For many high street lenders, these criteria will be pretty rigid, preferring to focus on the standard, vanilla-style properties. But even the more specialist lenders will have a preference on the properties they will offer to.
Non-standard construction
From a lender’s perspective, this means not made with traditional bricks and mortar. Lenders may be averse to the risks associated with non-standard construction properties and choose to rule them out to protect their loans.
Post-war prefabs
The bombing during WW2 depleted Britain of a serious amount of housing, leading to the introduction of a temporary programme by war-time prime minister, Winston Churchill. The Housing (Temporary Accommodation) Act of 1944 sanctioned the mass-production of homes made from prefabricated concrete, designed to be used until more permanent dwellings could be built. Amazingly, many of these properties still exist and are lived in today. Think Wimpey No-fines and Laing Easiforms.
It won’t come as a surprise that these types of properties are unpopular with many buy to let lenders because of the risk that they might be sub-standard. However, some will consider them subject to the findings of the valuation report.
Mundic concrete
Between 1900 and the mid-1950s, many homes in the Southwest, particularly Cornwall, were made with concrete mixed with the spoil from lead, tin and copper mining. By the late 1980s, it became clear that this construction method was not particularly durable, and some homes were rendered unmortgageable. If water penetrates the concrete, the spoil can oxidise into sulphuric acid, which reacts with the alkaline cement causing the blocks to crumble or expand. To prevent this from happening, these homes must be enclosed behind render under watertight roofs, and any offending blocks are usually replaced.
Today, some lenders will consider these properties subject to passing certain established tests. They are, of course, popular with some landlords because they are cheaper than properties of standard construction.
Kit houses, log cabins, Colt bungalows
Sourcing finance for these types of properties will vary in difficulty depending on when they were built. If the property was built between 1900 and 2000 and made from wood, getting a buy to let mortgage will be challenging as the construction methods used in this period may not have been up to scratch. More recent sorts of kit homes, including wooden construction or steel frames, will be more acceptable to lenders because the construction standard has come on in leaps and bounds.
Ex-Local Authority Housing
These properties used to be known as Council Houses and Flats. Many of these properties can be financed without a problem, although there may be loan-to-value restrictions and/or a minimum loan amount depending on the lender.
Ex-Local Authority Flats may have deck access, where entrances to individual properties are along an exterior corridor. Most lenders prefer flats to have separate access via an internal entrance hall/stairwell.
Large blocks of flats and high-rise blocks
Any blocks over ten storeys can be problematic, although blocks in London tend to fare better because they are in great demand. Lenders will have issues with larger blocks due to maintenance – they want to know that the entire property will be adequately cared for, so they usually like a certain percentage of flats to be privately owned.
Housing estates where the local authority owns 50%+
This doesn’t apply to all estates or all lenders, but getting finance could be trickier if the estate is run-down.
Properties in poor condition
If a property is not habitable, it will not qualify for a buy to let mortgage. To get around this issue, landlords often purchase properties with short-term bridging finance, carry out renovations, and then refinance once the property has been brought up to standard. Some lenders have a light refurbishment scheme or ‘Bridge-to-Let’, where the loan is underwritten on application, then when the property has been refurbished and is ready to let, it is re-inspected. The loan is then switched seamlessly onto a longer-term, buy to let scheme or retention is secured against the increased value. More and more lenders are also offering funding to increase a property's EPC rating to C or above.
Mixed-use properties
Also known as semi-commercial properties, these premises have part residential and part commercial elements, such as a flat above a shop. Although not necessarily difficult to fund, they do not qualify for buy to let finance. Instead, they require funded with a commercial investment mortgage.
Flats over commercial premises
If you’re not intending to purchase a mixed-use property, but are looking to buy a flat above a shop, be wary and take a good look at what’s in the commercial element. Restaurants, fast-food takeaways, and convenience or adult-only stores can all be difficult to finance because they could be hard for the lender to sell on quickly if they had to repossess.
Granny flats and annexes
The mainstream buy to let lenders prefer single-unit properties. Where there is a separate independent living space, it takes the property into the specialist lending area, and whilst these are not impossible to fund, you may not get access to the competitive rates.
Properties with mixed freehold/leasehold titles
This is where the landlord may own the freehold title of a multi-unit block of flats, but some of the flats within the property are on long leasehold titles owned by others. Many lenders do not like this arrangement, preferring the landlord to be the sole freeholder of the block. Again, this will require the attention of specialist banks/building societies, but funding can be arranged once the full facts are known.
Multi-Unit Freehold Blocks (MUFBs)
Multi-Units are typically multiple flats within a single building that are self-contained with separate access/amenities, where the property tends to be on a single freehold title. This is commonplace but still sits within the specialist lending area. Some lenders will restrict to no more than four flats within the freehold block, whereas others are happy to go higher. Some lenders will also impose a minimum value of, for example, £100,000 for the freehold unit or a minimum value per flat of £50,000.
Where some of the flats are studios, i.e. no separate bedroom, a minimum floor area of 30 square metres may be imposed.
It becomes more difficult for bedsits where amenities (such as bathrooms) are shared – again, these are not impossible to finance but require specialist attention.
Properties with flying freeholds
This is a legal term to describe a freehold property which overhangs or underlies another freehold. Common examples include a room above a shared passageway in a semi-detached house, or a balcony extending over a neighbouring property. These are not impossible to finance but will depend on what percentage of the property is “flying” or overhangs. Generally, no more than 15% is acceptable.
Properties in poor locations
It’s all about demand! Areas with poor transportation links or amenities can be a no-no. It’s not so much a problem in the Southeast due to the demand, but it can be difficult to get a buy to let mortgage on properties in very rural areas. Always take a look at what’s in a property’s immediate vicinity and ask yourself questions like:
- If I were a prospective tenant, would I want to live here?
- Will I be able to sell on this property quickly if needed?
If your answers are no, then the lender’s answer is likely to be the same!
Houses in Multiple Occupation (HMOs)
Financing these properties only really becomes challenging (but not impossible) if there are more than 20 bedrooms. For the most part, HMOs with up to eight bedrooms are relatively straightforward to finance with one of the specialist buy to let lenders.
Properties with poor EPC ratings
As it stands, properties must have a minimum EPC rating of E; however, new regulation coming into play will mean that for all new tenancies from 2025, properties must have a minimum EPC rating of C or above. This will extend to all tenancies from 2028. As mentioned above, funding is available from certain lenders to get the work done to bring a property up to a C or more.
Grade I Listed Buildings
These properties are an immediate no when it comes to buy to let funding, as they’re extremely complex, come with many risks and issues, and they’re likely to fail the new Minimum Energy Efficiency Performance rules anyway!
The trick for us as mortgage brokers is to match the property to the right lender. We do this every day, so do get in touch even if you think the property falls outside of borrowing criteria – you may be pleasantly surprised.
