Apartment buyers are being denied a mortgage: Here’s why

The housing market in the UK in 2021 was frantic, to say the least. With an imbalance between demand and supply, a definitive change in buyer preference and a rather competitive race for space, the housing market in 2021 was certainly on the rise. According to estate agents in Sittingbourne, 2022 will see a rise in the number of people who are looking to purchase apartments, be it new-builds, off plans or even existing ones.

Due to the number of people working from home, the shift in buyer demand was pretty clear – people were now looking to upgrade their homes, and their lifestyle, by moving into bigger and better places. Potential buyers and homeowners were looking to move into spacious properties, with outdoor spaces and home offices, away from the hustle and bustle of the city. As this trend emerged, the demand for apartments, especially in the city centre, reduced. However, as employees start going back to work and as the world begins to recover from the impact of Covid-19, the demand for apartments is back on the rise. With prices in the UK reaching an all-time high, first-time buyers are looking to purchase apartments in order to climb on the property ladder. The reason first-time buyers are choosing apartments is pretty simple; apartments are affordable, easier to maintain and usually require a relatively low deposit. But, there is a catch; while the demand for apartments in the UK has certainly increased, the chances of being denied a mortgage for an apartment have also increased! Below-mentioned is why lenders are denying a mortgage to apartment buyers and here is what you can do about it.

To find out if you are applicable for a mortgage, get in contact with the best mortgage brokers on the market. Reputable mortgage brokers will be able to provide you with information about how much you are able to borrow. They will be able to offer you a complete individual assessment to discuss your applicable property options.

The deposit is too low

Essentially, lenders do not want to approve a mortgage with a very low deposit. Since apartments are relatively cheaper than homes, the deposit on the apartment is certainly lower than the deposit on a house. The fear among lenders is that in case a borrower is unable to repay the mortgage, they will have to repossess the property to recover their money.  Lenders and banks would rather give a low deposit mortgage on a house, as they are confident that they can regain their investment by selling the house. On the other hand, apartments are much harder to sell, which makes a mortgage on an apartment a very risky deal. Also, in the current market, it is very difficult to sell an apartment.  Leading lender Nationwide was accepting a 10 per cent deposit for homes in 2021, whereas they preferred a 15 per cent deposit for apartments during the same period.

Here’s what you can do: In order to get approved for a UK mortgage on your new apartment, offer a higher deposit amount. Start saving for the deposit a few months before you apply for the mortgage so that you can put down at least 20 per cent of the total payment as the deposit. This could increase your chances tremendously.

Some apartments are too new

To balance the demand and supply in the housing market, the UK government is taking it upon itself to introduce more residential properties in the market in the early months of 2022. While there is an upside for potential buyers and first-time buyers, there is a downside too. Banks and lenders feel that a new apartment will start to lose its value after a few years, in which case they might not be able to recover their loan in case of failed mortgage payments. In the lending world, an apartment is considered ‘new’ for almost 2 years.

Here’s what you can do: Start looking at pre-owned apartments instead. Lenders might actually agree to a low deposit mortgage for a pre-owned property, as low as 5 per cent. However, when it comes to new builds, the minimum deposit amount varies from 10 per cent to 25 per cent.

An apartment being too small is also a reason for lenders to reject a mortgage application. In the UK, the average size of an apartment is around 37 square metres. Some lenders have a rule that they will not give a mortgage to an individual who is looking to purchase an apartment that is anything less than 30 square metres because it is considered to be a risky investment. Also, if you are looking at a fancy new-build or an existing residential building that has become very popular in recent times, then the chances of getting your mortgage approval rejected are also pretty high. The reason, a bank will attempt to mitigate its risk by not approving too many mortgages for the same residential building.

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