Social Housing Mortgage
A social housing mortgage can include a variety of tenant types with all types of vulnerabilities, from DWP tenants receiving housing benefits, all the way to tenants that are vulnerable and may be receiving housing support from a housing association or charity. In our detailed guide below, we will explain what social housing mortgage lenders will want to see in relation to lease covenants, types of vulnerabilities, things to consider with housing associations and when you might need specialist mortgage products.
Social Housing Mortgage
A social housing mortgage can include a variety of tenant types with all types of vulnerabilities, from DWP tenants receiving housing benefits, all the way to tenants that are vulnerable and may be receiving housing support from a housing association or charity. In our detailed guide below, we will explain what social housing mortgage lenders will want to see in relation to lease covenants, types of vulnerabilities, things to consider with housing associations and when you might need specialist mortgage products.
"*" indicates required fields
PROCESS BREAKDOWN
Information gathering and advice
The first process in your social housing mortgage application with Mortgage Lane will be gathering or updating information in relation to the property, or yourself. Once this has been established your expert Mortgage broker will make a product recommendation.
Credit approval
Once you are satisfied with the product recommended and have confirmed to proceed, this will usually be submitted the same day to give you a decision, Once the lender has approved the deal, we can instruct the valuer.
Underwrite and valuation
Once the mortgage application is submitted, your valuation will be paid, depending on the lender it may be instructed immediately or once the underwriting has been approved. Once the valuation is returned, if acceptable, the lender would then look to make a formal offer. You can then move to legal stage.
Offer and completion
Once you have had your mortgage offer, you will require legal representation. Your solicitor can draw down your mortgage offer once all legal requirements are satisfied. If you are taking a long term lease with a social housing provider, be sure to get a copy of the lease to your solicitor as soon as possible so they are able to check the covenants against the lenders criteria. Your broker at Mortgage Lane will always be checking in on the application post offer, we are chasing the completion for you too!
Social housing mortgage tenant types
Investing in social housing involves understanding the diverse types of tenants who require these services. Each tenant type has unique needs and characteristics, influencing how buy to let lenders assess and underwrite mortgages for properties intended for social housing. This understanding is crucial for investors to ensure they make informed decisions and secure favourable mortgage terms. Below we list some of the tenant types we see with social housing, some of which are more vulnerable than others and carry additional considerations when looking for social housing buy to let mortgages.
There are a lot of housing associations that will work with Asylum seekers and offer leases to property owners to take on the property and manage the tenant including any property maintenance. Asylum seekers as a tenant type, most social housing mortgage lenders offering the most competitive products usually find this tenant type acceptable. A common (HA) working with asylum seekers and widely accepted by buy to let mortgage lenders would be Serco.
Social housing mortgages are available to those investing in buy-to-let properties for leasing to housing associations (HA) that provide support to Youth Housing. As long as you’re working with a reputable housing association, mortgage options will be widely available for experienced borrowers, which is usually 12 months buy to let experience. Without experience, more expensive mortgage options are available with specialist buy to let lenders.
Overnight Care Housing tenants are considered a more specialised tenant type, requiring additional support and making them more vulnerable and occasionally . Lenders tend to take a higher risk approach to this tenant type, which may result in mortgage products that are slightly more expensive and fall within the tier 2 range.
Investing in buy-to-let properties to lease to housing associations (HA’s) that provide Emergency Hostels and Shelters can yield a reliable income while making a significant social impact. These associations specialize in offering urgent, temporary housing solutions for individuals in crisis, ensuring your property is managed efficiently and maintained properly.
Tenants in Emergency Hostels and Shelters are highly vulnerable and require immediate, comprehensive support. As a result, lenders often take a more cautious approach, which may lead to mortgage products in the tier 2 range with slightly higher costs.
Investing in buy-to-let properties for leasing to housing associations (HA) that provide Domestic Abuse Refuge Housing offers financial stability for you and a safe haven for those in need. Many housing associations specialise in offering refuge to individuals fleeing domestic violence and are eager to lease properties, manage tenants, and handle maintenance.
Most social housing mortgage lenders offering leading products find Domestic Abuse Refuge Housing tenants acceptable, therefore product options are higher than more vulnerable types.
Investing in buy-to-let properties to lease to housing associations (HA) that provide Sheltered Housing tends to offer consistent financial returns and a supportive living environment for older adults or individuals with specific needs. Many housing associations specialise in offering sheltered housing and are keen to lease properties, manage tenants, and oversee maintenance.
Sheltered Housing tenants are widely accepted by many social housing buy to let mortgage lenders.
Investing in buy-to-let properties for leasing to housing associations (HA) that support individuals recovering from substance abuse can provide a reliable income stream while making a significant positive impact. These housing associations specialize in offering comprehensive support and housing solutions, ensuring your property is well-managed and maintained.
Tenants in Substance Abuse Housing require extensive support and care, making them particularly vulnerable. Due to this, mortgage lenders often approach these investments with greater caution, potentially resulting in mortgage products that fall within the tier 2 range and carry slightly higher costs.
A buy to let mortgage with DSS tenants are at the lower end of the spectrum with lending risk and therefore, there are a lot of mortgage options for this tenant type in comparison to other social housing tenant types. There are a considerable amount of buy to let mortgage lenders that will lend on a property where there are DSS tenants, but won’t lend on buy to lets with social housing leases in place. When renting your property to DSS tenants you will usually have an assured shorthold tenancy agreement in place which the buy to let mortgage lender will want to see on application.
social housing mortgage due diligence
When considering a social housing mortgage, partnering with a well established housing association is crucial. These associations play a significant role in managing and maintaining the properties, ensuring they meet the needs of tenants. To secure a buy-to-let mortgage for social housing, lenders will underwrite them, so it's essential to conduct thorough due diligence before signing a contract with a provider. Doing correct due diligence ensures they are suitable for mortgage lenders and that they represent a safe investment partner. In this guide, we will provide comprehensive information on the due diligence process for housing associations. You’ll learn how to assess their stability, reputation, and suitability, ensuring a secure and profitable investment.- Check the news: Checking the news against these housing associations will allow you to review any bad press that might deter you entering into agreements with these providers and also to make sure they will be acceptable to mortgage lenders.
- Check on companies house: Checking companies house can confirm how long the housing association has been trading and if they have a track record, you can also check their financial stability.
Covenants and Housing Associations
- Check the draft lease: Checking the draft lease might include covenants and hand back polices to make sure that you are not going to be liable for damages within the term of the lease.
- Regulation: Depending on the location of your social housing buy to let, the mortgage lender might want to see the following redress approvals for the operating housing associations:
-
- Healthcare Inspectorate Wales (HIW) - Wales
- Care Quality Commission (CQC) - England
- The Care Inspectorate (CI) - Scotland
Research social housing mortgage topics
lease covenants
Checking lease covenants with your broker and therefore the lender will allow you to get comfortable with your mortgage options in advance. It is key to check:- Length of lease term offered
- Hand back policies
- Break clauses
C3b use mortgage
Properties with a C3b use class are suitable for supported housing scheme rentals. This use class is typically associated with supported living arrangements where the residents may have a need for care and assistance but still live within a residential setting. The properties do also qualify for buy to let mortgages, understanding what this use class entails can help investors make informed decisions, particularly when considering social housing mortgages.What is the C3(b) Use Class?
The C3(b) use class falls under the Town and Country Planning (Use Classes) Order 1987 in the UK. This classification specifically covers:- Residential Use: Properties used as a dwelling house by not more than six residents living together as a single household.
- Care and Support: Residents who receive care, such as individuals with disabilities or those requiring support services.
What is an Ofsted report?
An Ofsted report is a document created by the Office for Standards in Education, Children's Services and Skills (Ofsted), a UK government agency responsible for inspecting and regulating services related to education and care for children and young people. These reports assess the quality of education and care provided by schools, nurseries, colleges, and similar institutions and can often be requested by lenders as part of underwriting so they can make sure that they are lending on a property where there is suitable management and quality of service within the housing association (HA) that manages the property. Ofsted reports focus on several key areas:- Quality of Education – How effectively the curriculum is delivered and how well students learn.
- Behaviour and Attitudes – How students behave, their attendance, and their attitudes towards learning.
- Personal Development – How well the institution supports students’ development beyond academics, including their personal growth.
- Leadership and Management – How well the institution is led and managed.
- Safeguarding – Whether appropriate safety measures are in place to protect children and young people.
- Outstanding
- Good
- Requires improvement
- Inadequate
Lenders May Require an Ofsted Report
For mortgage lenders who finance social housing projects, Ofsted reports can be a critical factor in assessing risk. If the property or facilities are used for services involving education or care for children, the quality of these services impacts both the value of the investment and the security of the loan. A positive Ofsted rating signals that the institution is well-run, safe, and likely to maintain steady occupancy, reducing financial risk for the lender. On the other hand, poor ratings may indicate potential issues with management, safety, or demand, which could affect the lender's confidence in the borrower’s ability to meet mortgage obligations and could impact the lenders reputation if the report is not positive.ABOUT SOCIAL HOUSING MORTGAGES
When looking for Housing Associations to partner with it is key to remember they need to have a good track record to be approved by some buy to let mortgage lenders. Research housing associations that specialise in the type of housing you want to provide. Look for established organisations with a good track record, positive reviews, and accreditation from relevant authorities. Associations like Serco, Mears, are examples of well regarded organisations that buy to let investors may partner with for social housing buy to lets.
Housing associations usually handle all aspects of tenant management, including vetting potential tenants, providing support services, and addressing any emergencies. This reduces your involvement in day-to-day management and ensures professional oversight.
Yes, there are mortgage products tailored for properties leased to housing associations. These mortgages may have slightly different terms and rates compared to standard buy-to-let mortgages, often due to the perceived risk associated with certain tenant types. It’s advisable to work with a mortgage broker such as Mortgage Lane, we specialise in social housing mortgages and work to find the best deal for you.
Lenders may want experience, especially if you are looking to lease a House of Multiple Occupation to a housing association, without experience you may be subject to higher interest rates. Most lenders will class you as experience with 12 months buy to let experience to demonstrate borrower suitability. If you don’t have experience, it is still possible to get a social housing mortgage on a buy to let or House of Multiple Occupancy property.
While previous experience in property investment can be beneficial, it is not a requirement. Partnering with reputable housing associations and working with a mortgage broker experienced in social housing mortgages can provide the necessary guidance and support.
For uninhabitable property purchase that will be refurbished for social housing use may need to consider using a bridging loan or a refurbishment loan. These products provide short-term financing to purchase and refurbish the property. Once the property is habitable and leased to a housing association, you can refinance onto a long term buy to let mortgage tailored for social housing.
Yes, it’s certainly possible for some development loans to fund 100% of the works cost. However, this is typically subject to the condition that the gross loan does not exceed around 75% of the project’s end value or Gross Development Value (GDV). In addition to this measure, lenders usually require a minimum contribution from the borrower, often termed as ‘skin in the game’. This contribution, which can range from 5-10% of the project cost, reflects the borrower’s commitment and can be in the form of funds or equity.
In lender’s terminology, the Loan to Cost (LTC) ratio should ideally be no more than 90-95%. It’s worth noting that some lenders may allow this equity contribution to be provided by a private investor.
Lenders also pay close attention to the project’s profitability. For instance, they may have a minimum required ‘profit on cost percentage’, such as 15%. Provided these financial measures are met, lenders may agree to finance 100% of the work costs, payable in arrears.
For example, if your project involves work totalling £100,000, the funding is typically split into phases. With many lenders setting a minimum drawdown amount (commonly around £25,000), your project might be structured into four drawdowns of £25,000 each. It’s important to remember that each drawdown will incur professional fees. Therefore, maximizing drawdown amounts can help reduce the overall cost of borrowing.
In practice, applicants usually forward fund their schemes or arrange for their builder to finance the initial phase, often under a JCT or minor works contract. At Mortgage Lane, we’re here to help navigate these options and find a solution that aligns with your project’s financial requirements and goals.
In social housing mortgages, specialist buy to let mortgage lenders often work with a closed legal panel. This means they have a predetermined list of solicitors authorized to act on their behalf. When you apply for finance, you will need to select a solicitor from this list for your legal representation.
Some lenders may offer joint representation, where the chosen solicitor represents both you and the lender. However, many lenders on a closed panel may insist on sole representation for themselves. In such cases, you can choose your own solicitor, as long as they meet the lender’s criteria.
It’s important to note that with sole representation, you will incur two sets of legal fees, one for your solicitor and one for the lender’s. Understanding these requirements and costs can help you better navigate the process of securing social housing finance.
We arrange cost-effective social housing finance for:
- Individuals
- Special Purchase Vehicles/Limited Companies
- Limited Liability Partnerships (LLP)
- Trading companies
- Charities
- On/Offshore Trusts
It is important to note that social housing mortgage products are not covered by the Financial Services Compensation Scheme, so borrowers should ensure they are dealing with a reputable lender.
Lease terms with housing associations typically range from 2 to 5 years, offering long term stability but some housing associations may offer lease terms of 10 years or more. Lease agreements should clearly outline rent payment schedules, maintenance responsibilities, and tenant management protocols. It is important to consult with a mortgage broker before signing a lease with a social housing provider so you are able to understand what mortgage options are available with the lease you are considering. Mortgage lenders will consider and underwrite your draft lease to confirm it is in line with their lending criteria.
Most housing associations take on the responsibility of property maintenance, ensuring your property remains in good condition. It’s essential to confirm these terms in the lease agreement to avoid unexpected costs.
Leasing to a housing association can provide stable and reliable rental income, but mortgage rates might be slightly higher for higher-risk tenant types. Overall, the financial benefits include reduced vacancy rates, consistent rent payments, and minimised management costs.
Valuation methods can vary depending on the property type. Single units are typically valued using residential and comparable-based methods. For Houses in Multiple Occupation (HMOs), commercial MV1 (Market Value 1) investment valuations are commonly used, reflecting the property’s income-generating potential.
Some mortgage lenders may not lend to social housing properties due to the reputation risk involved within some tenant types, or in the event of repossession, if they need to sell the property with vacant possession, some lenders are concerned with the reputation risk involved in evicting vulnerable tenants. But there are many buy to let lenders offering mortgage products for borrowers leasing to housing associations that will house vulnerable tenants.
Social housing mortgage lenders consider applicants with less-than-perfect credit records. At Mortgage Lane, we specialise in helping you find the right lender for your social housing finance needs, even if you have faced missed payments, County Court Judgments (CCJs), defaults, or an Individual Voluntary Arrangement (IVA). Once you’ve been discharged from bankruptcy, your financing options typically broaden after 3 years and improve even more after 6 years.
When it comes to social housing mortgages, a minimum income is generally not a key criteria for underwriting. While some lenders may set a minimum income threshold, this is not a universal requirement across all lenders. Each lender’s criteria can vary, so it’s important to explore different options and find one that suits your financial situation. At Mortgage Lane, we can help you navigate these varying requirements to secure the most suitable mortgage product for your social housing buy to let.
We assist our clients with social housing mortgages in England, Wales, Scotland, and Northern Ireland.
Learn more about mortgages with Mortgage Lane
View all BlogsGET IN TOUCH
- Up to 80% Loan to Value
- No experience required
- Vulnerable tenants
"*" indicates required fields