Why Lease Structure Matters for Social Housing Mortgages

When landlords look at a social housing or supported living investment, the focus is often on the property – the value, the rental and the location.

But when it comes to securing a mortgage for a property let to social housing, there is another document that can be just as important:

The lease.

For social housing investments, the structure of the lease can have a significant impact on whether a lender is prepared to provide finance.

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Why Do Lenders Care About the Lease?

A mortgage lender needs to consider what happens if things don’t go to plan.

If the housing provider stops paying rent, the landlord may need to regain possession, sell the property or refinance with another lender.

The lease therefore needs to give the lender sufficient comfort that the property remains a viable security throughout the mortgage term.

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Lease Length

Long-term leases can be one of the attractions of social housing. A landlord may benefit from several years of contracted rental income and reduced exposure to void periods. However, these long leases aren’t automatically viewed positively by every lender.

The lender will consider how the lease interacts with:

• The mortgage term
• The property’s value
• The landlord’s ability to regain possession

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Break Clauses

Lenders will look for break clauses in the lease – this means the landlord may have a right to terminate the lease after a certain period, subject to specific conditions.

From a lender’s perspective, this can provide greater flexibility if circumstances change.

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Every Lender Has Different Criteria

This is perhaps the most important point. There isn’t a single rule that applies to every social housing mortgage.

One lender may be comfortable with a particular lease structure, while another may have concerns about the same arrangement.

That’s why we would recommend considering the finance prior to signing a lease.

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How can Advocate Finance help?

A social housing property can look like an excellent investment on paper, but the lease can ultimately determine how financeable that investment is. Speak to us today to find out how we can assist financing your social housing property.

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