Freehold garden flat - mortgage problems

Incacola

Wonder if anyone could advise me?
My boyfriend and I want to buy a flat together and we are first time buyers, so need to arrange a mortgage. We have found a garden flat that we like, that is part of a house with a further flat above it. Unusually though, the property is for sale with the freehold. At first we thought this was good as we could have some kind of control over the maintenance costs etc but now it appears we are likely to have trouble getting a mortgage. Is this correct?
One broker I spoke to said, I would need to speak to the vendor and should really ask for her to get her solicitor to draw up a leasehold and purchase that and the freehold separately. I would then only need to get the mortgage on the leasehold and would have much better options. If I wanted to do this, then who should pay the solicitor fees? The owner or me?
I can see that I would probably get a better deal doing this but I’m a bit concerned how this would work in a few years time if I wanted to sell the flat. What if my future buyer didn’t want the freehold? Would I be stuck with it (and all of the hassle)?
Would another option be to ask the flat above if they wanted to purchase half of the freehold? (I get the impression this is unlikely)
I’m very confused and concerned that this purchase could bring up some tricky issues. Would it be better to look for another flat with a normal leasehold?
So many questions!
All advice appreciated!
PS: Mortgage wise – I think we are quite a good bet as we have enough to put down a 30% deposit. Shouldn’t that help us?

phead

First thing I would do is go to https://www.landregistry.gov.uk , hit the property search at the top and check what is registered. The situation you suggest is surprising.
"the property is for sale with the freehold" normally describes the leasehold being for sale and the freehold is included, which often happens, otherwise the correct term would be that "the freehold is for sale". You should really seek advice from a solicitor

Fire_Fox

Are you sure the garden flat is freehold, is the upstairs flat on a separate freehold title? Or are both flats share of freehold? Or is the upstairs flat leasehold with the vendor of the garden flat being the freeholder for the entire building? Only the first scenario is difficult to mortgage. The second scenario will mean compromising with the upstairs flat in order to get work completed, so you should check the owners out! The third scenario means you have all the rights and responsibilities of a freeholder, there is a lot of legislation to comply with so you may find you need to invest a lot of time in the role.

Doozergirl

I think you need to look at answering Fire Fox's questions. There are different ways of owning freehold.

Even owning it outright but with the other flat on a lease is okay, it's just if both flats are genuine freeholds - in which it can be rectified but both flat owners will need a solicitor to sort things out for them. It would be, in that case, in the genuine interests of both to split the freehold title into share of freehold and leases.

Your broker doesn't know the answer to this question and a lot of Estate Agents simply don't understand the details around freehold/leasehold/share of freehold/commonhold so can be next to useless. If there is a HIP then I suggest getting a solicitor to look over it before you do anything else in order to establish if there is an issue or not.

How long have the present owners owned it? The Land registry will also tell you if they have a mortgage themselves - big clue as to it's mortgageability hopefully!

Richard_Webster

I think you need to look at answering Fire Fox's questions. There are different ways of owning freehold.

Even owning it outright but with the other flat on a lease is okay, it's just if both flats are genuine freeholds - in which it can be rectified but both flat owners will need a solicitor to sort things out for them. It would be, in that case, in the genuine interests of both to split the freehold title into share of freehold and leases.

Your broker doesn't know the answer to this question and a lot of Estate Agents simply don't understand the details around freehold/leasehold/share of freehold/commonhold so can be next to useless. If there is a HIP then I suggest getting a solicitor to look over it before you do anything else in order to establish if there is an issue or not.

How long have the present owners owned it? The Land registry will also tell you if they have a mortgage themselves - big clue as to it's mortgageability hopefully!

I agree.

There are a number of possible scenarios including shared freeholds and Tyneside/Criss Cross lease schemes but the most likely is that the freehold in question is of the whole building and is subject to and has the benefit of the leases of the other flats.

Most lenders will accept such a scheme which is described in Part 1 of the Council of Mortgage Lender's Handbook as follows:

5.5.3 Unless we indicate to the contrary (see part 2), we have no objection to a security which
comprises a building converted into not more than four flats where the borrower occupies one of
those flats and the borrower or another flat owner also owns the freehold of the building and the
other flats are subject to long leases.

It is then a case of looking at the Lender in question's part 2 which can be downloaded from:

http://www.cml.org.uk/cml/handbook/england

Most major lenders will accept this situation so if this is the position then your broker simply quotes the lender's Part 2 back at them.

Incacola

Thanks for all your advice.

I’ve been going round the houses a bit with a couple of brokers and think I could probably get a mortgage for a freehold property but it seems as if I would get a much better deal if I was able to get the vendor to either change it to a leasehold and then sell me both the leasehold and freehold separately; or sell me the leasehold and get the upstairs flat to split the freehold with me. Apparently, she renewed the upstairs lease last year so possibly she could get the same lawyer to do it not too expensively. Is something like this likely to cost a lot? i.e: £100s or £1000s?

What implications though would it mean for me if I owned the freehold and leasehold separately and wanted to sell in a few years? I don’t want to get stuck with the freehold of a property I don’t live in!

Richard_Webster

I’ve been going round the houses a bit with a couple of brokers and think I could probably get a mortgage for a freehold property but it seems as if I would get a much better deal if I was able to get the vendor to either change it to a leasehold and then sell me both the leasehold and freehold separately; or sell me the leasehold and get the upstairs flat to split the freehold with me.

This is complete twaddle. It's like saying that the average mortgage lender has different terms (interest rates etc) for lending on flats than for houses.

I have given you the paragraph to quote and you get an ordinary mortgage using that paragraph. I think these brokers are still trying to find you a mortgage for a pure freehold flat and they don't understand what they are doing. Most major lenders e.g. Santander & Nationwide, will lend on a freehold subject to long leases and that is what you are buying.

Which lenders are they recommending if you buy leasehold? Quite likely some or all of them will accept the current situation. Let me know and I can tell you.

Also remember if you get the seller to sort out some kind of freehold sharing situation with the other flat owner you will then be beholden to the other flat owner e.g. when you want to sell your flat because you will need his signature to transfer the share of freehold to the new buyer. If you buy the freehold subject to the other lease now you have more control in the long term and be in a stronger position as landlord as far as the other lessee is concerned.

Go to another broker and say you are buying a flat which falls within 5.5.3 and tell them to look that up.

Incacola

RE: Phead’s point

I’ve just checked the Land Registry website and its listed as follows:

Number XXX Road
Freehold

First Floor Flat Number XXXXXX Road
Freehold
Leasehold

Does that seem correct?
or does that imply that the first floor flat has both leasehold AND freehold?

Sorry – this is all completely new to me!

JayZed

Incacola, what you've found in the land reg suggests that the ground floor flat owns the freehold for the whole property, with the benefit of the leasehold on the upstairs flat. Is there a single title number for the freehold for the property and the freehold for the first floor flat ?

Richard_Webster

Incacola, what you've found in the land reg suggests that the ground floor flat owns the freehold for the whole property, with the benefit of the leasehold on the upstairs flat. Is there a single title number for the freehold for the property and the freehold for the first floor flat ?

Quite. If there is a single title number for both references to the freehold then it is a 5.5.3. situation as I have already explained.

Entertainer

Incacola wrote: »

Thanks for all your advice.

I’ve been going round the houses a bit with a couple of brokers and think I could probably get a mortgage for a freehold property but it seems as if I would get a much better deal if I was able to get the vendor to either change it to a leasehold and then sell me both the leasehold and freehold separately; or sell me the leasehold and get the upstairs flat to split the freehold with me. Apparently, she renewed the upstairs lease last year so possibly she could get the same lawyer to do it not too expensively. Is something like this likely to cost a lot? i.e: £100s or £1000s?

What implications though would it mean for me if I owned the freehold and leasehold separately and wanted to sell in a few years? I don’t want to get stuck with the freehold of a property I don’t live in!

Although it looks like it doesn't now apply, owning the freehold along with your leasehold interest on a flat is a huge advantage to you, it is definitely not a liability!! You have more control over what happens to the building and you can either sell the freehold to the new leasehold owner when you sell or even sell the freehold to a freehold management company. Freeholds have value if they charge ground rents etc. Think of it as a free gift.:bdaycake: