What Types of Property Will Banks Typically Lend Money On?

Banks and Building Societies will typically lend money to individuals who wish to purchase buy-to-let property on leasehold flats (not above commercial premises) and freehold houses, terraces, houses and cottages. Some banks consider leasehold flats above commercial premises. Most banks also require at least some 55-60 years left on the leasehold agreement.

The banks would normally stipulate property to have assured short-hold tenancy agreements.

About half of banks will allow borrowing for Homes of Multi-Occupancy (HMO) – meaning homes that have different contracts for different rooms, as long as the contracts are assured short-hold tenancy agreements. Some banks will not lend on such homes with more than say 5 or 6 separate rooms. The lender may also require evidence that the property has the appropriate fire/environmental certificate for HMO and that the council is in agreement that the property is operated as an HMO (in any case, you will need to check this). Almost all banks will not lend on property with DHSS tenants (e.g. tenants who claim unemployment and housing benefits). Some will only lend on multi-occupancy homes if they are filled with students – these students may have single assured short-hold tenancy agreements or one such agreement for the whole house (the former would normally be preferred).

It is very rare to find a bank that will lend money on homes with so called “sitting tenants” or tenants with assured tenancy agreements. These tenants have full rights to stay and the value of such property is normally reduced to say 75% of the normal market value. A purchaser may find a bank willing to lend money on such property, but the purchaser is likely to need to put down a 40-60% deposit.

Some investors are willing to purchase such property if they have a lot of cash, it is a very low price and the “sitting tenant(s)” are very elderly or a deal could be struck to facilitate them moving to another appropriate home. Others investors may be happy with the rental income and be prepared to keep the tenants indefinitely.

Some banks will lend on property with bedsits (HMO – with say 8 bedsits) but this might be at commercial rates, with a lending limit of 75% of the purchase price assuming a multiple of gross rental income of 150% of the annual mortgage payments (at commercial un-discounted rate).

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