Studio flats can be a cost-effective solution for private rental tenants, making them popular. Why should you consider studio flats as a profitable investment, and what must you know about financing them?
A studio flat is a property with a bed, living space and kitchen facilities in one large room, and a separate bathroom. Typically, these properties are more affordable for renters due to their size and running costs, making them high in demand, especially as monthly rental prices continue to rise.
Why Should Landlords Consider Studio Flats?
A studio flat is a reliable and rewarding option for landlords considering their next investment. Purchase prices on these properties are typically lower and are generally cheaper to run than bigger flats or small houses. With this in mind, as well as the high demand from certain tenant groups (students, young singles, etc.), these properties can generate higher rental yields for landlords than standard buy to lets.
Do BTL Lenders Accept Studio Flats?
Buy to let lenders’ main concern with studio flats is how easy it is to re-sell the property if they have to repossess it from you. Of course, although significant demand exists for these properties in the rental market, they may not be everyone’s first choice to purchase, so this does make lenders wary of these investment types.
Approximately 50% of buy to let lenders in the market will lend on studio flats. However, they have strict criteria that the property needs to meet in order for them to offer. For example, most lenders specify that the property is a minimum of 30 square-metres. Some lenders will lend on properties below this size, but may restrict the loan to value (LTV) to 70% or even 65%. When dealing with studio flats, the property’s size will play a major role in getting the application through. There are some lenders in the market that we can access which will consider properties below 30 square-metres without restricting LTVs, so it’s best to speak with a mortgage broker who can direct you to the right lender for your situation.
If you’re converting part of a property into a studio flat, your lender will want to see the right planning permission in place. You can speak to your solicitor to check that all planning permission consents and building regulation certificates are correct and up to date. This should help speed up your mortgage application.
What Will Lenders Look For In Your Application?
The property’s location plays a highly important part in getting the mortgage application through. The hotspot areas for demand for studio flats are large cities such as London and Manchester. This is because studio flat tenants are likely to be young workers/commuters, and are often single, so are happy with the limited space. However, the quality of these properties will also be important to the lender, so it’s essential that you find the right property for your portfolio.
Similarly, the building the flat is in will also play a major part. Typically, lenders prefer flats within buildings of five floors or less compared to high-rise blocks. Some lenders have reservations surrounding ex-local authority and non-standard construction buildings, so it’s worth considering that these situations could make your mortgage application more complex.
Lastly, the surveyor’s comments surrounding the ‘re-saleability’ of a property will heavily influence a lender’s decision when it comes to the mortgage application. As such, working with a mortgage broker who can help you find the right lender for your situation is essential. Our expertise and whole-of-market access means we can help support you in your property investment decisions. To speak with one of our brokers, call us on 0345 345 6788, or submit an enquiry here.
22nd February 2023