When discussing barriers to homeownership for first-time buyers, the industry conversation usually revolves around affordability tests, rising deposits, and high house prices. Yet, advisers on the front line know there is another obstacle, often less visible to the public but just as decisive: lender property criteria.
While they are designed to manage lenders' risks, they can leave buyers disheartened and advisers in the difficult position of delivering bad news. Banks and building societies have tightened their requirements in recent years, making it harder for buyers, especially those with smaller deposits, to secure financing. Beyond the usual checks on income and credit history, lenders impose strict rules on the type, location, size, and even height of properties they are willing to finance. These restrictions disproportionately affect first-time buyers, who often have limited options and must compromise on their ideal home.
For lenders, these restrictions make sense protecting their book from hard-to-sell or high-risk assets. For advisers, they create a recurring point of friction with clients, particularly first-time buyers who often lack awareness of these issues until it is too late. The net effect is a narrowing of viable housing stock, with many entry-level properties falling outside mainstream lender criteria. This ultimately puts upward pressure on the remaining “acceptable” homes, further limiting choice and affordability for new entrants.
Many advisers will recognise this scenario. A client walks in, full of excitement, having found what they believe to be their perfect first home. The price is within budget, the location is right, and they are ready to proceed with a full mortgage application after obtaining a decision in principle.
But then the brakes are applied. The property is above a takeaway, in a high-rise block without a valid EWS1 form, has a short lease, or comes with more land than the lender is comfortable with. The result: it falls outside the lender’s criteria.
The conversation that follows is always deflating. The client, who thought their homeownership dream was within reach, is told they will either need to find a different property, raise a larger deposit to fit within stricter loan-to-value limits, or consider a specialist lender — often at higher cost. For many first-time buyers, this feels like hitting an invisible wall. This also makes the house buying process longer since estate agents will not usually allow a viewing until prospective buyers have a decision in principle at hand.
Lenders don’t treat all postcodes or properties equally. Certain areas are deemed “high risk,” particularly where there are concerns about resale potential or where the local economy is considered unstable. Properties above shops, pubs, or restaurants can also cause issues due to perceived noise, smell, fire risks or resale appeal. For a first-time buyer, this means that affordable flats in vibrant urban areas, often the entry point to the housing market may be out of reach simply because a lender won’t lend against them so they find themselves from mortgage options simply because of where they can afford to live.
Some lenders refuse mortgages for ex-local authority homes and some require larger deposits or avoid ex-council properties altogether, assuming they have lower resale value. Many have height or floor restrictions on ex-local authority flats that they will consider. This makes it difficult for buyers to purchase in urban areas where high-rise living is often the most affordable option. Don’t even get me started on non-standard construction properties which are made from unconventional materials (e.g., concrete, timber, or steel frames). These often face lending restrictions or higher interest rates.
Another common hurdle is the tenure of the property. Leasehold flats with shorter leases (typically under 80 years) are often deemed unmortgageable, even if they are otherwise affordable. For buyers who cannot afford freehold properties, this narrows the pool of options further.
Even modern modular homes, increasingly popular for affordability and sustainability, may be rejected because they don’t fit traditional lending models. First-time buyers keen on innovative or cheaper housing options are left with fewer choices. These rules push buyers towards homogenised new-build estates, reducing diversity in housing stock and stifling rural market growth and also force buyers to overlook otherwise affordable homes simply because they don’t meet a lender’s arbitrary criteria. This makes it difficult for buyers to purchase in urban areas where high-rise living is often the most affordable option.
The limitations also apply to minimum and maximum acreage rules for those considering rural or semi-rural properties, lenders may impose land size restrictions. Some lenders see excessive land as a liability, requiring larger deposits or refusing loans altogether and unusual plot shapes or very small gardens may also raise red flags for lenders which in turn can shut out buyers looking for more space at a lower cost outside urban areas or cities.
Despite government remediation schemes on EWS1 and cladding delays, many lenders still avoid flats with unsafe cladding trapping buyers in unsellable homes and also deterring new buyers.
While responsible lending is necessary, the current criteria are so restrictive that they lock out many first-time buyers from viable properties. The result? A generation stuck renting, unable to build equity, despite being financially capable of meeting mortgage payments.
The difficulty for first-time buyers isn’t just about saving deposits or managing affordability stress tests. It’s also about navigating a maze of lender restrictions that shrink the number of “acceptable” homes. Unless criteria evolve to reflect the realities of today’s housing market where affordability pressures push buyers towards smaller, taller, or less conventional homes the dream of homeownership will remain just that: a dream for many.
If government policy is serious about improving access to homeownership, lender criteria must be part of the conversation. More flexible approaches to modern methods of construction, leasehold reform, and clearer communication of lending restrictions could all ease the burden on buyers and advisers alike.
Until then, advisers will continue to face the difficult task of tempering clients’ excitement with hard realities. A reminder that affordability is only half the battle, and that lender risk frameworks remain a hidden but powerful gatekeeper to the housing ladder.
