Ex-local authority properties may be the perfect option if you’re looking for a good-value buy-to-let investment in SE1 – but there are a few things you need to know about getting a mortgage.
Southwark and Lambeth boroughs have a large proportion of ex-council properties that are now in private hands. Buying ex-council can make desirable, and very central, areas such as Bermondsey, London Bridge and Waterloo a lot more affordable. On average, ex-local authority homes can be as much as 20% cheaper than their private equivalents, meaning that anyone looking out for an investment could land a bargain.
Since the Right to Buy was introduced in 1980, over 300,000 council homes in London have been bought by their previous council tenants. Some of these properties have then been purchased by private landlords, who were able to buy the property at a more affordable price than similar properties that are not ex-council.
Being a landlord in London can be confusing. There are over 170 Acts & Regulations to consider, so, how do you know if you are compliant?
There’s a wide variety of property types to choose from too, from historic brick-built homes and recent social housing, taking in houses, maisonettes and flats – many with good internal space and gardens.
On the downside, you may find it harder to get a buy-to-let mortgage on an ex-local authority property, because of the perceived risks involved. Before you start your ex-council investment search, take a look at the pros, cons and issues you should be aware of.
Ex-council homes are definitely worth thinking about but you need to weigh up the pros and cons of buying, and think carefully about whether the home you’re looking at is a good investment.
Yes, but you may find you need to shop around a bit more. Lenders also place certain conditions on buying ex-council flats in London and you could struggle to get a mortgage based on details such as:
It is advisable to speak to a specialist mortgage broker with experience of working with lenders who offer loans on ex-local authority properties. They will be able to use their expertise of the market to identify the best mortgage lender based on the specific details of the property and any issues that standard mortgage lenders would see as a high risk.
Want to be a more informed landlord? Ex-council flats are just one route into property investment – warehouse conversions in London are another, and either way it’s worth knowing how much it costs to rent out a property.
If you currently live in a home which you rent from the council, you can’t purchase the property through the Right to Buy scheme to rent it out immediately. The rules of Right to Buy mean that the tenant must buy the property for living in as their home.
It’s designed as an affordable way to get your foot on the property ladder, with discounts for public sector tenants and you may qualify for first-time buyers’ relief on stamp duty. Anyone buying through Right to Buy must take out a residential mortgage and live in the property for five years before seeking to convert their mortgage to a buy-to-let product.
If you’re looking to buy a property recently purchased through Right the Buy, the rules say that it can’t be sold on the open market for at least 10 years. Once this period has elapsed you should be free to apply for a buy-to-let mortgage to purchase it.
Lenders believe there is more risk associated with ex-local authority properties – especially flats. Much of this is for reasons such as:
As with any mortgage, your lender will be looking for evidence that you can meet the monthly payments and that the property is a sound investment. Whether you can get a mortgage on an ex-council flat in London also hinges on the property itself. Things to consider are:
When lenders decide whether to approve a mortgage on an ex-council flat, they will also consider factors such as the location, the type of property, the materials used to construct it, and the number of other private owners in the local authority block.
The lender wants to be assured that the property will have an adequate resale value to provide some security against the mortgage loan.
Before you commit, think about your long-term plans, including whether you should sell your buy-to-let one day, and check whether the area falls under Southwark selective licensing.
These are the steps to follow if you want to obtain a mortgage for an ex-council flat:
The first step is to check whether the council is still the freeholder of the property. If they are, then you will need to check details such as annual service and maintenance costs to decide whether it is a good investment or not. You should also check whether any major works are planned for the property that could be expensive.
As ex-council properties can be more difficult to get a mortgage on, contact a specialist mortgage broker to find the right lender. They can connect you with banks who are more willing than others to lend for ex-council flats. A broker who has experience in finding mortgages for ex-council properties will also be able to identify the best mortgage deals based on your financial circumstances and the specific details and risks of the property.
Once you have been provided with ex-local authority buy-to-let mortgage options to compare, you can decide which one will be the best choice. You can then start the application process and provide the lender with all the required information, such as income, outgoings, and deposit amount. They will check your credit score and perform the usual checks that are made on standard mortgage applications.
Your mortgage lender will arrange a valuation of the property to check it is worth the amount you are purchasing it for. It is also a good idea to arrange an independent condition survey to make sure there are no issues with the structure or other major repairs that could cost you a lot of money further down the line.
Ask the estate agent who is selling the home about the previous ownership of the property or check yourself on the Land Registry website.
Looking to buy in The Cut or Shad Thames? If you are thinking of investing in buy-to-let property or wondering how to become a landlord in south east London, we’d be happy to talk to you about the pros and cons of buying an ex-council home, as well as show you our current selection of investment properties.
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Lee Whitelock
Director
Being a landlord in London can be confusing. How do you make sure you are compliant?