Can’t get mortgage on 12th floor flat, should I buy cash?

by Readers Question

7:35 AM, 19th August 2014
About 4 years ago

Can’t get mortgage on 12th floor flat, should I buy cash?

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Can’t get mortgage on 12th floor flat, should I buy cash?

Hi all

I have seen a flat for sale in South London, a few stops away from London Bridge, so excellent location.

It is advertised at £210,000 – Cash only. Can't get mortgage on 12th floor flat, should I buy cash?

This is an amazing price and based on the rent it would generate, a good solid rental yield.

Now my concern is that this flat is on the 12th floor of a 15 storey block. According to the agent, no lender would lend on a flat above the 5th floor, hence cash only. I have done some research and it seems the main reason why they won’t lend is due to it being harder to offload if they have to repossess. I can live with this, but is there any other reason?

I am in a position where I could get the cash together as this is a really good deal, but I would like to know if there are any problems in purchasing a flat so high up. (Must be a problem if a lender wont secure it?).

Also the block is managed by the council, as opposed to a management company. Any advantages/disadvantages here?

Interested to hear thoughts.

Thanks

Adam



Comments

Mark Alexander

7:43 AM, 19th August 2014
About 4 years ago

Hi Adam

If you can't get a mortgage then you can't leverage your returns.

If you can afford to buy one property for cash then you could probably buy three with mortgages and have some money left over for a rainy day. If properties increase in value then you could make three times as much money by owning three as you would if you were to own only one.

You also need to start with the end goal in mind. How many people are there in the same position as you are to buy for cash. Then how many of those people are likely to want to buy the property that you will eventually be selling? You might have a major problem when you do eventually decide to sell it.

I suspect the market for renting 12 story flats isn't too good either. It might well have a great view but if the lifts stop working I can't imagine anybody would be too pleased about that. Also, these cheap high rises tend to be in grotty areas where the neighbours might not be particularly nice people. I know I sound like a snob, and perhaps I am, but I think I'd give this one a wide berth if I were you.
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Gary Nock

9:23 AM, 19th August 2014
About 4 years ago

Apart from the leverage issues there is a reason why this is a cash deal and its cheap. Either structural issues or short lease. Both or either of these will make it difficult to refinance or sell. I do have clients in their 70s who are well off who buy such properties for investment yield as its better than they get off the banks and even if the lease is short (70 years or less) then they are not bothered because the lease will outlive them and whomever its left to can just sell at auction. But if you have more than 10 or 15 years of longevity left then walk away

Lyndon Whitehouse

9:34 AM, 19th August 2014
About 4 years ago

Hi Adam
I agree wholeheartedly with Mark's observations.
In relation to the council being the freeholder, I own and manage quite a number of ex council flats but only in three or better stil two story blocks. These are mortgageable.
These properties don't have lifts to maintain or caretakers on site. Hence service charges are much lower.
However the great advantage is that you are dealing with THE COUNCIL. So you're not dealing with a private profit making organisation. Councils will generally respond to help in relation to anti social behaviour for example, in a much more robust way than a private freeholder (they have ASB officers on their payroll),
They will generally be fair with maintanence and improvement charges and are, from my experience, open to developing good relationships with leaseholders. I am the chair of the Walsall Leaseholders Forum and also sit on the Wolverhampton Forum.
Hope this helps.

Regards

Lyndon Whitehouse

Mark Alexander

9:37 AM, 19th August 2014
About 4 years ago

Reply to the comment left by "Lyndon Whitehouse" at "19/08/2014 - 09:34":

Hi Lyndon

Could you get a link for Property118 on the websites of those forums please?
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Lyndon Whitehouse

9:49 AM, 19th August 2014
About 4 years ago

Hi Mark
The forums are run by Walsall Housing Group and Wolverhampton Homes. These both manage council stock on behalf of the councils.
There is no direct website for the forums, they are leaseholders to have their say at meetings. I would also point out that 90+ % of members are inevitably owner occupies.

Regards

Lyndon

Gary Nock

10:04 AM, 19th August 2014
About 4 years ago

And following on from Lyndon's comments and a conversation we had some months ago.......if its council they are a lot more reasonable on lease extensions. But remember the old adage..if a deals looks too good to be true..then it probably isn't a good deal!!

Mark Alexander

10:42 AM, 19th August 2014
About 4 years ago

Reply to the comment left by "Lyndon Whitehouse" at "19/08/2014 - 09:49":

OK thanks Lyndon, worth a try 😉
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Joe Bloggs

10:47 AM, 19th August 2014
About 4 years ago

hi mark
i shared your prejudice prior to buying our first ex council high rise. in fact the people on the whole are much nicer than those in our luxury block. council flats are well built and often in great areas. they tend to be well proportioned. the only downside are the high service charges and lack of finance at moment due to credit crunch. however teh yields are much better.

Joe Bloggs

10:51 AM, 19th August 2014
About 4 years ago

Reply to the comment left by "Gary Nock" at "19/08/2014 - 09:23":

ex council flats have 125 yr leases so unlikely to be short. we had some amazing purchases during the last recession of these sorts of properties. if done up to good standard they command a very good rent and demand is high. we have just rented one in canning town to a cambridge graduate!

Yvette Newbury

14:49 PM, 19th August 2014
About 4 years ago

Adam, you are on my turf! Our portfolio is majority ex-local authority flats in this area. The advantage for your buying now is that most of the fire safety work has just recently been done - major works bills (over and above service charges) can be high in ex-local flats BUT the advantage is that you know your tenants are safe, and it saves you having to do the work on your own. The rental yields on these properties are large, but if you do buy, always keep aside some rainy day money for when the roof needs fixing etc. I know that goes for any landlord but, as I say, when the Council decides it needs doing costs to you can be high. Look on Zoopla etc for properties in and around your block for rent to see what you will be obtaining in rent and do your sums. At that purchase price it is VERY tempting! If you proceed with the purchase you will be given details of the last major works and any planned for the near future, so pay careful attention to what has already been done. In a tower block look out for lifts, roof, replacement windows, fire safety work all of which may have been done recently. Good luck!

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