Mortgage on Studio with no Management Co

Hourglass

Hi

I've had a look and have not seen this posted previously so.....

I have put an offer of £52k on a studio flat and been accepted. The place is near my work and the mortgages I have so far been accepted for have had repayments that I can afford. However, my stumbling blocks are:

1) It's a studio flat - Northern Rock did not like this although other lenders were fine.

2) There is a leasehold of 85 years but no management company. I checked this with the estate agent and they said that was the case. However on getting a quote with Alliance & Leicester they mentioned that I would be hard pushed to get a mortgage without a management company for my flat.

Can anyone offer any help as the place isn't the Ritz but it is cheap, near to work and will cost less than my commuting so will suit me fine. I have had my offer accepted but obviously didn't know enough to realise that this would be a problem.

Can anyone offer any solutions as I do not want to withdraw my offer as properties this cheap do not come along that often.

Thanks for any help in adance.

Xbigman

If there is no management company find out who is paying the buildings insurance and maintaining communal area's. There will be someone responsible for this.

Also, if you have a good deposit you will find many companies suddenly become more flexible. Just talk to a human being face to face, not a call centre.
Regards



X

Hourglass

Xbigman - Thanks for the quick (and v early!) response! I have been told that each occupier is responsible for their part of the building but am going to phone the estate agent today and double check this.

I only have a 5% deposit unfortunately and also going against me is the fact that I have only been in my job a few weeks. A & L have said they will need 3 payslips from my current employer whileas I only have 1.

I know this is the job for me as I am really enjoying it and the company is a good one but am beginning to feel there is a brick wall round every corner waiting for me to slam my head against......

Perhaps this is why it's so cheap

HelpWhereIcan

The reason that you will have a problem getting a lender for the property is that they will essentially treat it like a freehold flat. This means that there are a handful of lenders who will consider it:

Halifax/Bank of Scotland Group, Skipton Building Society, Co-Op and a few others may consider it 'subject to valuers comments' ie they wil put the onus on the surveyor to say whether it is suitable for mortgage purposes. This can be very hit and miss, so I would have a word with a broker who can look at all your circumstances, but (most importantly) have a word with the surveyor before you spend/waste your money on a valuation fee.

Cases like these do not have a black and white list of lenders who will and won't - just those that might.

Hope this helps

Hourglass

Thanks HelpWhereICan - I have contacted London & Country as recommended by this site and explained everything and they think they can find something but may be higher charges. Feel it is worth it with property prices going up & up & up.

I am trying to contact the organisations you mentioned but stuck in a queue. It does help as I didn't realise what the problem was.

Xbigman

If the flat is cheap enough it is worth overcoming all the problems with getting a mortgage. If you take a while to find the mortgage you will, by then, have multiple wageslips.

This type of lease, where you maintain your bit, is the worst of all worlds. Also look around for buildings insurance in advance. You might find it hard to come by or very expensive. Also talk to your solicitor and ask what would happen if the flat below, above or behind you burnt out and your flat was wrecked too. Would the owner of where the fire started be liable or would you all be jointly liable? And who is responsible for the roof, the top flat or jointly.
Regards



X

Hourglass

Thanks for the advice Xbigman. I have contacted my estate agents to find out who the lease owner is 'cos someone must own it! It's not an ideal situation I agree but it is cheap (FTBs can't be choosy!) so I feel I should go for it. I will be contacting my solicitor on Monday as they were not in today to ask all the questions that you have raised as I think they are valid ones.

Beginning to wonder if I'm taking on a bit too much with all this but I suppose if my broker comes back and says he cannot get a mortgage then i won't touch it.

Thanks again for your help.

HelpWhereIcan

The thing I would expect the solicitor to check is that there are mutually enforcible repair clauses in the lease as this is what would normally be expected to take the place of the management company. They should also find out what insurances (block or individual) are in place. The more flats, the riskier this property is - which is obviously reflected in it's price.

Unforunately, some types of leasehold flats end up with no management company surprisingly frequently. This mainly happens when the original builder/developer was only a small company, they do their bit for a few years and then go bust/disappear, leaving the properties without a management company. Sometimes the local council then becomes the freeholder (but without the responsibilities) sometimes it is a dummy company.

From what I know, the most common way round it is for the individual leaseholders to form a management company between them which then buys the freehold. This is beneficial as it will (possibly) make the properties more saleable and potentially increase their value (cos they are easier to sell).

One of my investor customers spent 3 years buying up 6 flats in a similar situation and then formed a management company to look after them - saw his investment grow quite considerably, but this will have also been helped by the fact that he bought 1999-2002 so would have had a lot of growth anyway.

Have a word with the solicitor and get their opinions.

Hope this helps

EdInvestor

It's not uncommon for there to be no management company.Quite often the freeholder of the block will do the comparatively minor amount of work involved, particularly if he is also a leaseholder owner of a flat himself as well - this keeps the costs down and other leaseholders will normally be happy.Management company charges can be extortionate

You need to find out exactly what the situation is here.If it is as above,no problem: a key thing to find out is whether there is one insurance policy for the whole building and everyone pays their share of the premium (good) or if each flat has its own buildings (not contents) insurance policy (bad).

If this flat is not a normal leasehold arrangment bear in mind it may be difficult to sell. Is it cheap compared with other local studios? If so, that could be why.

Hourglass

Thanks so much for your help everyone!

As a FTB this seems to be a bit of a minefield and I don't want to make a wrong move. It was suggested that I contact all the other people in the block and ask about forming a management company amongst ourselves which might help. However I believe that some of the flats are let as I know mine was before it came up for sale which may make this difficult as tenants are not going to be interested in this. Perhaps their owners might?

Does anyone know where I might find out this information? When I spoke to the estate agent today they said they would be contacting the vendor's solicitor for me but is there anything that I can do research-wise to get the ball rolling and to give me peace of mind?

I know the flat is selling cheap as the area is expensive and when looking on say Rightmove there is not a lot that somes up in this proce range! But if I can sort this issue out then it will obviously be worth it. A few of my friends have been talking about the investment side of this but to me, this is a place to live first and foremost and I will not be looking to move for a few years.

Again, thanks for helping out - I really appreciate it!

EdInvestor

Does anyone know where I might find out this information? When I spoke to the estate agent today they said they would be contacting the vendor's solicitor for me but is there anything that I can do research-wise to get the ball rolling and to give me peace of mind?

The vendor of the flat ought to know the details of who the freeholder is. Ideally there will be a freeholder who is the owner of the building, and the flats are owned by the leaseholders ( some of whom may be letting them out to tenants). Sometimes the freehold of the building will be owned by a company established jointly by the leaseholders.

The estate agents really ought to to be able to get this basic info from the vendor. How long is the lease?That's another thing you need to know.