William Coe said it could be ‘unintentionally shutting first-time buyers out of exactly the homes they can afford’
William Coe(Image: Cleerly)
An expert has shed light on a “less visible problem” facing people in the UK housing market today.
William Coe, from mortgage broker Cleerly, said that affordability was often thought of as the biggest hurdle facing first-time buyers, but he said something else was emerging as a problem. That, he said, was buyers being blocked from buying affordable flats due to “increasingly restrictive mortgage lending criteria”.
Many first time buyers assume that if they have saved a deposit and passed a lender’s affordability checks, securing a mortgage should be straightforward. However, the reality is becoming far more complex, William said.
He explained: “One growing issue affects apartment developments with high numbers of rented properties. A number of mortgage lenders are reluctant to lend on blocks where investor ownership exceeds certain thresholds, regardless of how financially strong the individual buyer may be.
“This means buyers can find themselves rejected not because of their income or credit history, but because of the wider ownership profile of the building they hope to live in. At the same time, surveyors are increasingly downvaluing flats, creating another obstacle for buyers who have already secured a mortgage agreement in principle. The result is a growing mismatch between buyer demand and lender appetite, particularly in parts of the market traditionally viewed as the most affordable route onto the property ladder.”
Service charges issue
The 1% service charge threshold has become a critical trigger point for some lenders, William said. Certain banks have hard limits written directly into their lending policies. For example, Gen H states that annual service charges must not exceed 1% of the property’s purchase price or valuation, while MPowered Mortgages caps the combined service charge and ground rent at 1.5%.
William said: “Once service charges approach these levels, many lenders defer to the surveyor’s judgement. They are effectively asking whether the property would remain saleable if they ever needed to repossess it. If the surveyor believes the service charge is excessive or out of step with comparable properties in the area, the flat may be deemed unsuitable security and the mortgage application declined.
“This is becoming increasingly problematic because service charges have risen sharply in recent years due to soaring building insurance premiums, maintenance costs and regulatory requirements. As a result, many otherwise affordable flats are now sitting dangerously close to lender thresholds.”
Different lenders assess this risk in different ways
Some lenders, including Santander and Barclays, focus primarily on affordability. They treat service charges as another monthly commitment, similar to a car loan or student loan repayment. Buyers with strong disposable income may still qualify despite higher charges, William said.
He added: “Others take a market-based approach, asking surveyors to compare the service charge against local norms. A £4,000 annual service charge on a £300,000 flat may be viewed as excessive in some regional towns, but entirely reasonable in central London developments offering concierge services, lifts and extensive communal facilities.
“The challenge is that outcomes can vary significantly depending on the lender chosen and the surveyor involved. In some cases, a property can be accepted by one lender and rejected by another.
“Underlying these policies is a concern about future risk. Unlike a fixed loan repayment, service charges can increase substantially over time, often with limited control for leaseholders. From a lender’s perspective, this uncertainty creates concerns about future affordability and, crucially, the property’s marketability if it ever needs to be repossessed and sold.
“The consequences are increasingly being felt by first-time buyers, who are finding that some of the most affordable homes on the market are also becoming some of the most difficult to finance. At a time when policymakers are focused on helping more people onto the property ladder, there are growing questions about whether current lending policies are unintentionally shutting first-time buyers out of exactly the homes they can afford.”