Creating Leaseholds on Freehold House Converted To Flats

mikesonthemic

Hi there,

I'm wondering if someone can help out with some advice about selling self contained flats within a house.

My girlfriend and I have had an offer accepted on a freehold house and have been granted planning permission to convert it into 3 flats (1 x 2bdr & 2 x 1bdr)

I'd like some advice about buying/selling the propertie(s), specifically tips regarding mortgage finance, legal requirements and timing.

Essentially, what is the easiest way to complete this buy and sell process in a short period (3 months from completion of buying to putting the flats on the market) of time and what legal considerations do we need to make.

Thanks very much for you help.

Mike

Richard_Webster

1. Your buyers are unlikely to get a mortgage to buy a flat where the building has been owned by you for less than 6 months.

2. As well as planning you will need to comply with the building regulations.

3. You need to decide whether you want to hold on to the freehold after you have sold each flat by way of newly created lease.. Do you want the management hassles?

clutton_2

in terms of the practical issues around building regs etc you would do well to ask over on a forum called property tribes which has a lot of professional landlords and developers who could help with advice - Richard Webster is, of course, our great resident solicitor .... they dont have one of those on property tribes !

mikesonthemic

Thanks Richard, thanks clutton.

As part of the planning process we have taken advice from the council and also several local builders regarding the building regulations so I have that covered off.

Richard: In regards to your response, above, I have a couple of questions that you may be able to help me out with.

- When you say buyers are unlikely to get a mortgage on a flat that we have owned for less than 6 months do you know to what extent this is unlikely? Is there a legal way to get around this? The first project that I completed (a simple refurb) was sold in 3 months and the buyer didnt have any problems

- When selling, will it be possible (ie is a bank likely to allow this) to sell a leasehold for one of the flats considering my mortgage was originally taken out on a house, not 3 flats.

Thanks again for you help, it's very much appreciated.

Mike

Richard_Webster

Lenders have tightened up their requirements and it is pretty general that ownership for less than 6 months and they won't lend. A few years ago we merely had to tell them about it and explain the circumstances and if there was a genuine refurb or conversion and the prices made sense in the market they wouldn't make a fuss. Now they do.

I had a case where national builder built some blocks of flats and in the aftermath of Northern Rock etc couldn't sell them so speculator came along and offered a low price off plan for all the flats in one block, which builder accepts. When flats virtually finished my client comes along to builder's show flat and they tell her they are selling some and so is the other chap - price about the same. She decides to buy one of the ones he had "bought". At the time he hadn't even completed his purchase but was selling to my client for same price as builder was offering similar flats, so nothing suspicious. Halifax point blank refused to lend. In the end Barclays/Woolwich did.

You would need your lender's consent to grant a lease. They might say that you would have to pay off the whole mortgage out of the proceeds or they might allow it to go ahead on payment of part - you would have to ask them.

westv

Richard_Webster wrote: »

Lenders have tightened up their requirements and it is pretty general that ownership for less than 6 months and they won't lend. A few years ago we merely had to tell them about it and explain the circumstances and if there was a genuine refurb or conversion and the prices made sense in the market they wouldn't make a fuss. Now they do.

So really then just another made up excuse by banks to restrict where they lend money.

G_M

Or part of a general tightning up of the ridiculously and dangerously loose lending criteria of the last two decades. Maybe the balance isn't right, but better too cautious than what went before....

sonastin

mikesonthemic wrote: »

- When selling, will it be possible (ie is a bank likely to allow this) to sell a leasehold for one of the flats considering my mortgage was originally taken out on a house, not 3 flats.

Your mortgage is secured against the entire property. If you do something which means that, in the event of repossession, the lender is unable to sell off the property the loan was originally secured against, the lender needs to know about it. (same as if you grant an tenancy so the lender can't take vacant possession as easily, you need consent to let)
The conditions could vary from requiring you to pay back a portion of the loan commensurate with the loss in value of the property they can repossess to requiring the whole mortgage paid off (with any attendant ERCs) and a new mortgage taking out on the remaining flats.