Mortgage on ex-LA going at auction?

by Readers Question

10:27 AM, 11th February 2020
About 10 months ago

Mortgage on ex-LA going at auction?

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Mortgage on ex-LA going at auction?

I’m looking to buy an ex-local authority flat on the first floor of a 10-storey block in Hackney. The building has several lifts and, in general, is in good condition.  There is no deck access – the corridor where you enter the flat is closed to the elements. But only 16% of the flats in the building are privately owned.

The flat is going to auction and I wondered whether I should risk it?

I’ve already been approved for a mortgage, but the broker says it will be up to the valuer’s comments. Obviously I don’t want to purchase it if I can’t resell it – I’m planning to live there, but only for about 2-3 years.

Thanks for any advice you can offer.

Ella


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Comments

Neil Patterson

10:32 AM, 11th February 2020
About 10 months ago

Hi Ella,

When you purchase any property that is difficult to finance you need to factor this in at the start.

Anything that reduces the level of demand (eg ability to finance) for the property will reduce the Price in the future compared to similar properties that do not have restricted demand.

Ivor Bailey

11:06 AM, 11th February 2020
About 10 months ago

Hi Ella,

I recently had to re-mortgage a similar flat a few months ago.

When I purchased it about 12 years I had no problem getting a mortgage, but this time it was very different.
There are only a few around who will lend on ex LA and as somebody has said it depends on valuers comments.
The first valuer said that there was very few privately owned in the block and surrounds and so no mortgage was offered.
I then went to a different lender who employed the same firm of valuers but a different person visited the property and the mortgage went through.
So unless it sells really cheaply and you are willing to take the risk - beware of the pitfalls.
If you want to go through the pain you can research what privately owned flats there are and how they were purchased.
Things could change in the years you are living there, but be careful!

Gary Nock

9:33 AM, 12th February 2020
About 10 months ago

Also check length of lease. Anything under 70 years is generally unmortgageable. Anything under 80 years attracts a " marriage value" as a premium under the lease and will cost you more to extend. Generally LA flat lease extensions are cheaper to extend than commercial freeholder owned property. Also check the ability to sub let under the lease in the event you want to rent it out if you cannot sell in the future.

Darren Peters

9:40 AM, 12th February 2020
About 10 months ago

I have a few flats in ex-local high-rises in Hackney. I'm slowly selling down.

Most important if you have decided to buy in auction, have a plan B for the finance in case the mortgage company lets you down. It's not unknown for the mortgage company to agree in principle then change their mind and not tell you. They just drag out the process with random questions knowing you will run out of time. So be ready to have a bridging facility lined up ready to step in.

The above is especially so with they type of property you describe. From a lender's point of view there are several red flags namely above 5 floors in height, lifts (high service charge), ex-local authority and low percentage private ownership (big red flag). Method of construction might be an issue also.

When the money tide is high, you should have no problem with finance but if it's not at 'high tide' right now your prospective purchase is the first type they will stop lending on.

This should also be a concern with your exit strategy also. When you want to sell, your buyer might not be able to get finance as the money tide is low. You will have to accept that the best time to sell will be dictated by this much more so than a privately owned low rise flat.

In other words the yield has to be really good to justify the purchase. Ie the purchase price must be considerably cheaper than the vanilla private flat next door.

Also, the service charges and maintenance cost will be much higher, if the lifts need replacing you might get a bill for £10,000. If there's flammable cladding, you'll probably have to pay to have it removed. Ditto fitting double glazing - £10-£15000 since 10 floors of scaffolding is specialized and expensive.

Hackney Council in my view are full of great people doing their best (unlike others) but sometimes overwhelmed by problems and lack of funds. They seem to have a maintenance strategy that defies logic though. Eg spending more (of your!) money repairing part of a 50 year old communal heating system than it would cost to fit something new and more efficient.

So check if there are any planned works in the pipeline, the historical service charges. Go there late at night and other times to see if you can see any social issues that weren't apparent with the block when you saw it the first time. Do the lifts smell? With high rises it only takes one anti-social tenant to make everyone's life hell.

Check how much time is left on the Lease in case that's an issue.

Other than that, good luck and let us all know how it turns out.

JC

14:46 PM, 12th February 2020
About 10 months ago

I have no direct personal experience but my cousin who has a ex-council flat has serious issues getting it sold to someone who needs mortgage to buy. Effectively, the buyer has to buy with cash.
I think this is something to do with compulsory purchase order or along those lines where the council can exercise their right to buy back the property at a reasonable price at any point and mortgage companies do not like that.

Dylan Morris

18:53 PM, 12th February 2020
About 10 months ago

More than likely unmortgageable hence why it’s gone to auction. Unless you’re a cash buyer with a good knowledge of leasehold tenure and know exactly what you’re doing with ex-local authority units I’d steer well clear.

Jireh Homes

5:18 AM, 13th February 2020
About 10 months ago

Hi Ella - you should also read the posts on surveyors quoting £0 valuations where the external cladding on high rise flats is unproven.

David Lawrenson

18:23 PM, 13th February 2020
About 10 months ago

Agree with previous comments.

It is still very hard indeed to buy a flat like this with mortgage finance. And as a previous poster says, the willingness of lenders to consider it will wax and wane with the levels of confidence in the economy, the health of capital markets (for the lenders) and other factors.

My personal view is that we are at quite a high water mark on lending now. Lots of lenders willing to offer - and some clearly, even on this, which rather surprises me.
In the future, this may not be the case.

And so the majority of folks buying will be paying cash, not using borrowed funds from a mortgage. That said, many will be landlords looking to let (assuming there is no restriction on letting). And so, if the rental yield is very good - and it can be for some high rises, there will be a market of cash landlord buyers, whose main focus will be on high income rather than capital (property price) growth. If the gross rental yield is at least 8 or 9%, this would be a good sign of there being a possibly functioning landlord-buyers market in the future. But do make sure you do as one poster said - and check out if there are or could be any nasty future capital costs lurking for major works - as that will make potential buyers run a mile. And it should make you run too, unless you are getting a real low price.

David Lawrenson
http://www.LettingFocus.com
Advice in the Private Rented Sector for Landlords and Tenants


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