Mortgaged: how to get there
You've found your dream live/work property, now how do you get a loan to help you buy it? While some lenders are ahead of the game, for many the market remains small and untested. And some, it seems, are frankly confused. Liveworkhomes asks: what's a buyer to do?
The following advice was drawn up in 2006 when the mortgage market looked very different. Some of these lenders may no longer operate or have merged with other companies.Some may have reviewed their policies - for better or worse.
Please bear in mind too that while live/work is becoming much more widely recognised and understood in many parts of the UK, it is still a niche market. We can direct you to brokers with expert knowledge of the live/work mortgage market.
If you are finding it hard to secure a mortgage, give our marketing manager Liz Wakeham-Jones a call on 0845 324 5717 or email firstname.lastname@example.org
The situation is not all grim. Attitudes towards live/work have been boosted by the sharp upwards trend in home-based working, with recent Labour Force Survey figures showing the number of UK businesses run solely or mainly from home up 22% since 2001.
Homeworking Brokers John Charcol say they have been able to secure mortgage deals where other efforts had stalled.
'I'm not sure how we can ever thank you for all you've done,' Rebecca told John Charcol. 'I never thought I would see the end of this process after nine months of pure hell. I just wish I'd found you in the beginning. Thank goodness I found your information on the Live/Work Homes site! You were a true godsend. Thank you!'
Securing a mortgage on a designated live/work property, as buyers like Rebecca have found, is not always straightforward. Though the UK has some 140 lenders, the concept of live/work still remains unfamiliar to many, particularly at a local branch level.
Even within an individual organisation responses can vary from one branch to another. A lack of familiarity with the concept and the diverse range of live/work products lead some lenders to err towards caution, creating headaches for both developers and would-be buyers.
Live/work is a niche market and is therefore in a position similar to that of shared ownership and buy-to-let some years ago, according to the Council of Mortgage Lenders.
'Live/work is a very young and small market. Most lenders prefer not to spend a lot of time creating policies and processes specially for marginal markets,' says former CML deputy director general Peter Williams.
But he added: 'But some will see the potential in specialising in a growing niche market like this. Running a business from home is not new - lenders have been dealing with doctors and dentists and so on for decades. And there is clearly a trend towards homeworking, so it looks like this market will grow.
'If lenders notice others establishing a reputation in a new market like this, some may well be keen to avoid being left out.' He believes that a special live/work mortgage product is unlikely to be the answer however. Instead, a growing familiarity with the live/work market should make obtaining a mortgage for live/work increasingly straightforward.
Ray Boulger, senior technical manager at brokers John Charcol, suggests difficulties may in many cases be down to who you talk to. 'It may be you don't get through to someone sufficiently senior or some may not have looked at their policy for a while.' Charcol, he added, had successfully negotiated deals at favourable rates with main and specialist lenders.
WHAT ARE THE RULES?
The Financial Services Authority's MCOB (mortgage conduct of business) rules came into effect in October 2004. These require a property to have a minimum of 40% residential space to qualify for a regulated residential mortgage.
This means that, in principle, a live/work property with up to 60% of its space set aside for workspace could be eligible for a residential mortgage. But in practice lenders set their own level of risk. Many - but not all - turn the proportions round and prefer a maximum 40% workspace to lend on a residential basis.
This is important to live/workers because the alternative - a commercial mortgage - will usually be over a term of 15 years not 25 and will command a premium of an extra 2% or so on residential rates.
WHAT HAPPENS IN PRACTICE?
When we approached lenders to ask them about their approach to live/work mortgages, it was clear that the lending industry - with some exceptions - is somewhat off the pace in this new market. Though most were quick to stress that each case would be treated on its own merit, it became clear that designated live/work property (a 'sui generis' property use in planning speak) is still confused by many with basic home working.
Abbey spokesperson Joe Wiggins gave a typical response: 'A house with an office is much easier to sell on than one with a living area on a level above the work area. The thing uppermost in our mind is going to be marketability - is that asset readily sellable and will there be a market for live/work in the future?'
Abbey has set a £250k cap on the maximum loan it will make on a live/work unit, well under the amount many potential live/workers in metropolitan areas might need. Many other lenders, according to brokers The Mortgage Service (part of HBOS), do not cap like this but may require a 20 to 25% deposit.
Many lenders also prefer a low proportion of workspace if they are to lend on a residential basis - often around the 30 to 40% mark. See a typical Q&A on a lender website here.
Live Work Network is talking to key people in the lending industry to increase familiarity with the live/work concept and potential take-up in the UK. In the meantime, our advice to anyone seeking a live/work mortgage is: use a broker.
Brokers like John Charcol have proved themselves able to secure very attractive residential mortgages for live/workers, including with some lenders who claim not to fund live/work mortgages. In some cases the much discussed '40% cap' on workspace proportion can even be broken, with lenders offering to lend on a 50:50 floorspace fit.
Brokers can also get straight to the key people in a lending firm, bank or building society - avoiding the delays and uncertainty caused by cautious local branch managers who have no 'live/work' forms to fill in.
Why not tell us what experience you have had trying to secure a mortgage on a live/work property? Did you find lenders willing to lend, or at least listen? Or were you forced to jump through the hoops? We will use your real life case studies in our discussions with the lending sector. Email us
WHO WILL LEND?
See our article for a list of mortgage lenders we have spoken to or who we have anecdotal evidence that they have lent on a live/work property. A reminder that some of these lenders will only deal with an intermediary service such as a broker.
STILL NEED HELP?
Email us with your query or call Liz Wakeham-Jones on 0845 324 5717