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The challenge of mortgage lending on micro homes

by: Christopher Menon
  • 21/08/2017
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The challenge of mortgage lending on micro homes
Research from consumer organisation Which? has found that micro homes, defined as properties smaller than 37 square metres, are being increasingly built, bought and sold, creating a possible conundrum for lenders.

For example, according to the Which? research, approximately 8,000 such micro homes were built in 2016. However, with several of the major lenders, including Nationwide Building Society and RBS, not lending on properties smaller than 30 square metres, this can cause a problem for potential buyers.

David Blake, principal mortgage adviser, Which? Mortgage Advisers said: “With the average London micro-property selling for £279,000, smaller homes can represent a more realistic opportunity for many but can also be harder to mortgage.

“Smaller properties can put lenders off due to concerns around the future value of the investment. However, there are mortgage lenders who are receptive to properties of this nature, if demand is high enough and sustainable.”


Reassess criteria

Ray Boulger, senior mortgage technical manager at John Charcol commented: “Pretty much every lender has a restriction on size for studio flats, and micro flats could be considered a sub-set of these. However, if there continues to be significant new developments of such flats, lenders may have to reassess their criteria.”

He explained: “It’s all about saleability. If the flat is repossessed could it be subsequently resold? Provided there is good demand some lenders will be prepared to lend but will perhaps reduce the Loan to Value (LTV) to 75%.”

This appears to chime with the experience of modular flat provider Pocket Living. It supplies “compact” 1-bedroom flats that are 38sqm, which it was at pains to point out “complies with national Space Standards and are therefore not micro”.

The builder added: “Pocket buyers haven’t experienced any difficulty in obtaining a mortgage because of the size of the homes.”

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