A mortgage broker has highlighted a growing issue for first-time buyers in the UK housing market. William Coe from Cleerly said that while affordability is often seen as the main hurdle, a less visible problem is emerging: increasingly restrictive mortgage lending criteria that block buyers from purchasing affordable flats.
Many first-time buyers assume that with a deposit and passing affordability checks, securing a mortgage is straightforward. However, Coe explained that lenders are reluctant to lend on apartment blocks with high numbers of rented properties. Some lenders set thresholds for investor ownership, and if exceeded, buyers may be rejected regardless of their financial strength.
Additionally, surveyors are downvaluing flats, creating obstacles for buyers with mortgage agreements in principle. This mismatch between buyer demand and lender appetite is particularly affecting the most affordable entry points onto the property ladder.
Service Charges Issue
Coe noted that service charges are a critical issue. Some lenders have hard limits, such as Gen H requiring annual service charges not exceed 1% of the property's purchase price, and MPowered Mortgages capping combined service charge and ground rent at 1.5%. When charges approach these levels, lenders defer to surveyors' judgment on saleability. Rising building insurance premiums and maintenance costs have pushed many flats close to these thresholds.
Lender Approaches Vary
Different lenders assess service charges differently. Santander and Barclays treat them as monthly commitments, while others ask surveyors to compare against local norms. A £4,000 annual service charge on a £300,000 flat may be excessive in some towns but reasonable in central London. Outcomes can vary significantly by lender and surveyor, leading to inconsistent decisions.
Coe warned that unlike fixed loan repayments, service charges can increase unpredictably, creating future affordability concerns for lenders. This uncertainty is increasingly shutting first-time buyers out of affordable homes, raising questions about current lending policies.
