What does ex-council estates' rented/private ownership ratio _actually_ mean?

tamlynpeel · 13 June 2019 at 10:54AM

Hi all, long-time reader first-time poster

My partner and I are buying together in London and pretty much everything in budget is ex-council. Aware of the horror stories / good times, but taking care and it suits us for a first time home. We found a good maisonette on a well-arranged and leafy estate in Tulse Hill (yopa.co.uk/properties/details/86806), but the only information we have is that Nationwide has refused a mortgage on the basis of ownership/rental ratio:

“An unmodernised ground and first floor ex-council maisonette within a 4-storey local authority block of flats. The property forms part of a substantial public sector estate. There is a high volume of rented accommodation on the estate with limited demand for private ownership. The future saleability and marketability of the property could be adversely affected. The property has therefore been declined as being unsuitable security.”

My question is: What is this rental/private ownership a proxy for, that we could argue against with other evidence about the estate? I can't believe every buyer calculates this ratio from mouseprice/Zoopla data, and honestly private owners can be as awful neighbours as renters (and vice versa), so it must be being used by the valuer as a proxy for something? Deprivation? Desirability? Investment? How does this arbitrary number adversely affect marketability? It seems on the face of it to be purely elitist!

I've spoken to Nationwide (our mortgage advisor is away), but they can't give a clear answer.

We have some money to redo the bathroom (desperately needed), will redo the kitchen and make good the rest of the property, so will 'modernise' the place. Also now aware via the resident's association that the council have major works and a new community centre planned for the estate, which is good for the attractiveness (but also that we need to know possible costs and potentially renegotiate price down).

Would this information make Nationwide more likely to lend? Should we challenge the valuation? Or apply elsewhere? Or give up on this flat? I currently have a shared ownership mortgage with Nationwide so they are the simplest option in the first instance.

Any advice appreciated!

muhandis · 13 June 2019 at 11:05AM

Did you use a broker?

There are two possibilities -

1. Nationwide is not the most suitable lender for these kind of properties and there are other lenders (maybe specialist) who might be willing to lend, possibly at higher rates.

OR

2. The property is effectively unmortgageable (for whatever reasons).

If you haven't used a broker, I would recommend consulting with one. Given the prevalence of such properties in London, a decent broker should be able to give you a realistic idea of whether it can happen or not, so you don't waste any more time on this unless it's proceed-able.

tamlynpeel wrote: »

I've spoken to Nationwide (our mortgage advisor is away), but they can't give a clear answer.

Would this information make Nationwide more likely to lend? Should we challenge the valuation? Or apply elsewhere? Or give up on this flat? I currently have a shared ownership mortgage with Nationwide so they are the simplest option in the first instance.

ACG · 13 June 2019 at 11:15AM

I would expect it to mean that in the block of flats, only a small portion are owner occupied. That can be a problem with many lenders.

The upside is that you guys are good for the money, it is just the property that is the problem.

You could do with your broker really, this is one of those cases where you/your broker will need to call the various lenders before making another application. It needs to be checked prior to application.

I would expect a "normal" estate agent to give you some breathing space whilst you get another application under way.

tamlynpeel · 13 June 2019 at 11:52AM

Hi muhandis, ACG thanks for your quick replies!

Yes, we have a mortgage broker, just he's away on holiday so I've been trying to understand as much as I can what the problem is before we discuss our next steps next week. And I can't understand the relevance of this ratio, they might as well have said they don't lend on properties based on 6-letter road names. Makes it difficult to understand what to do about this or any other property. In much the same way as credit scores are an arbitrary game...

Nationwide is not the most suitable lender for these kind of properties and there are other lenders (maybe specialist) who might be willing to lend, possibly at higher rates.

I think (hope) you're right! I do still want more info from Nationwide, as I'm starting to think they didn't even bother visiting the property. I received an urgent message to contact the valuer on the day, but was away without phone signal for 3 weeks and when I rang Monday they didn't know what it was about. Possibly wanting more information? Something that could've helped?

The upside is that you guys are good for the money, it is just the property that is the problem.

Yes taking that one as a win!

It needs to be checked prior to application.

Suspect this might be the way to go initially if there's a possibility of still getting this place. We're keen to give it another go, if nothing else it's the second place we've tried to buy (first one seller pulled out) and I have a buyer all done and keen to move in!

Thanks for your advice.

davidmcn · 13 June 2019 at 12:05PM

tamlynpeel wrote: »

I can't understand the relevance of this ratio, they might as well have said they don't lend on properties based on 6-letter road names.

It suggests people aren't buying flats there, compared with other (ex)council developments. Why not? (obviously this is a bit chicken-and-egg if part of the answer is "because they can't get mortgages"). Also means buyers are less likely to be considering it as an option simply because they more rarely come up, and people are probably more comfortable being surrounded with (say) 50% council tenants rather than 90%.

sammyjammy · 13 June 2019 at 12:10PM

Have you considered the fact that the block is unmodernised? If and when the council or HA chose to modernise it you will be liable for your share of the costs which could and probably would run into tens of thousands

tamlynpeel · 13 June 2019 at 12:25PM

Hi davidmcn

obviously this is a bit chicken-and-egg if part of the answer is "because they can't get mortgages"

Yes that's what I worry about, it's all a bit Catch-22! Good point on the rarely coming up, that has been the Estate agent's words for some of the properties recently for sale on the estate.

If and when the council or HA chose to modernise it you will be liable for your share of the costs which could and probably would run into tens of thousands

Yes sammyjammy, we found out about some modernisation plans (with Section 20 notices still to go out) from the resident's association website after we'd made an offer - I think if we continue, we need to get the estimated costs of this and negotiate the price down first to reflect this. Not against upgrades per se as it'll make the estate much more attractive and we might benefit directly, and as long as the council are easy on the repayments we can factor it in. Actually hoping this info would make a mortgage more likely!

chunkytfg · 13 June 2019 at 12:45PM

tamlynpeel wrote: »

Hi davidmcn

Yes that's what I worry about, it's all a bit Catch-22! Good point on the rarely coming up, that has been the Estate agent's words for some of the properties recently for sale on the estate.

Yes sammyjammy, we found out about some modernisation plans (with Section 20 notices still to go out) from the resident's association website after we'd made an offer - I think if we continue, we need to get the estimated costs of this and negotiate the price down first to reflect this. Not against upgrades per se as it'll make the estate much more attractive and we might benefit directly, and as long as the council are easy on the repayments we can factor it in. Actually hoping this info would make a mortgage more likely!

https://www.theguardian.com/money/2019/may/18/a-terrible-shock-council-flat-owner-bill-tustin-estate

Food for thought. Note the point about low owner/occupier ratio meaning you have basically no say in work you have to pay for plus as it is a council owned/managed property there is no sinking fund to help with the costs.

Consider likely future works. Windows, roofs, Lifts especially.

ACG · 13 June 2019 at 12:46PM

The reason for the criteria (rightly or wrongly) is that typically areas with a high proportion of rented properties and/or social housing are less well looked after than those which are owned... apparently.

That is not my perspective, I was brought up in a huge council estate in Manchester so I am not being snobby when I say that.

tamlynpeel · 13 June 2019 at 1:22PM

theguardian.com/money/2019/may/18/a-terrible-shock-council-flat-owner-bill-tustin-estate

Definitely read the horror stories chunkytfg! There's the same with shared ownership (I currently have 40% with a housing association); but every form of ownership has risks, the amount of stories about new builds... This story is definitely the extreme!

Luckily no lifts at this estate which seem to cause a lot of the costs. Will definitely be finding out the estimated costs of the new work before we progress any further with the sale and renegotiating price to match.

The reason for the criteria (rightly or wrongly) is that typically areas with a high proportion of rented properties and/or social housing are less well looked after than those which are owned... apparently.

Yes this is what I'm wondering... because if that's the case we can query the valuation based on the planned works and the active resident's association (they do lots of gardening etc). Certainly not snobby to point out what the banks are second guessing! The place is 30% owned from what I can guess on Zoopla, so getting towards a mythical tipping point of 50%...

ACG · 13 June 2019 at 1:55PM

I can not see them overturning the decision personally. In 7 years I think we have had one valuation overturned on appeal. Generally speaking, unless you have no plan B available it is quicker and easier to just find a new lender.

If it was 40-45% and this purchase would make it 45-50%, I would potentially consider appealing it as it would only need one more purchase to be acceptable but at 30% I think it is too far away.

What does ex-council estates' rented/private ownership ratio _actually_ mean?

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