Finding a mortgage to join 2 properties

v_g_and_f

Hello
I have seen there is a similar thread to this on here, but I am looking for some advice on a slightly similar situation and would like some informed input!

We currently reside in one property and are looking to buy another, next door, and join the two. The property values are pretty low, so bridging finance would be an option if it were available. We are in a position where we can buy one property outright if needs be. All we need is some ideas of mortgage lenders who would let us do this.

We guess the mains guys wont do it and haven't found a broker we trust to shop around. Ideas for a mortgage lender of even an experienced broker would be great.

Any suggestions are very much welcome!

Thanks

Veronica

holly_hobby

The issue is securing a mortgage on a property that is later to have its title deeds amended/merged with a 2nd unit - the fact that the property to be merged is unencumbered may help.

A chat with a whole of market mortgage broker will help you sound out how the mortgage market as a whole will view the prospect, but you may find that lenders are a little nervous of the deal in case the development actually reduces the value of the secured unit, if not carried out to standards, etc .. etc...

IMHO - the least complicated route, is to finance the 2nd property pch from unsecured funds, merge the title deeds when the conversion has taken place and all signed off, and then remortgage the property as one whole unit to a mortgage lender (repaying the development finance as part of the remortgage).

Hope this helps

Holly

v_g_and_f

Thanks for the reply Holly.

We are still unable to find a lender to finance this proposal under any circumstances at the moment.

We have considered so far:

• a remortgage of our property to by nextdoor outright
• buy nextdoor with mortgage and pay off our own
• buy nextdoor with bridging loan, convert then remortgage
• find a lender who will take on a mortgage on both properties
• just knock through and deal with problems later (not a good idea)

The biggest issue seems to be that of the deeds. Lenders do not seem to want to give a mortgage on a property to be developed. They are also not keen as they wont have both sets of deeds initially. It seems to be a chicken and egg situation though... we can't join them both together or the deeds until they're under one single mortgage, but we can't get a mortgage until they're on one set of deeds.

Do we need to have the houses on one set of deeds? I am also worried that this will cause problems in the future for splitting them? I guess it could be very complicated to split a house in 2 in the future if it is still mortgaged and on one set of deeds?

The utilities are also a concern... will we need 2 standing charges? Has anyone had experience of merging 2 lots of utilites? Is it a costly experience?

To give a rough idea of the whole situation: we love the area we live in, have great neighbours and just don't want to move. We also have a young family who have outgrown the house and who we don't want to disrupt with the upheaval of selling/ moving/ decorating etc. I'm the kind of person who would need a new kitchen/bathroom/carpets where ever we go, so we would need a fair bit of work/cost once we move. We will probably not want to stay here forever though, I don't know what will happen in 10/15/20 years and can't guarantee we will always stay. Thus we need to know we will be able to move at some point (and afford to). Here, we're not interested in making money, and to stay could even take a hit and lose a small amount to stay, but we would need to know we could at least afford a deposit for somewhere else in the future if we wanted to move and would guess that splitting and selling would be the only way.

Any input from others who have encountered similar issues would be greatly appreciated. Our mortgage advisors/ solicitors can only help us so much and we really would love to hear from anyone who has done similar?

Thanks!

GMS

If you can buy one property outright why do you need a mortgage?

Do you have a mortgage on your property currently?

v_g_and_f

We have a mortgage on our property at the moment. Our options include either:

1) paying our mortgage off off and buying nextdoor on a mortgage

2) remortgaging our property and buying nextdoor outright

3) trying to have small mortgages on both

4) something else

The problems with 1 and 2 is that the mortgage companies wont let us join the 2 as they don't own the other property at point of conversion and wont give us permission. Also, we are struggling to find a company who will let us convert. We don't want to break any terms of a mortgage as we don't know what the repecussions would be!
The problem with option 3 is that we can't find a lender to do it.
The problem with 4 is we can't think of anything else, or find anyone else who can think of anything either!

GMS

What type of house is it?
How much is your current property worth?
How much do you owe on your mortgage?
How much is the new property going to cost?
What will the new value be when both are joined?

v_g_and_f

GMS wrote: »

What type of house is it?
How much is your current property worth?
How much do you owe on your mortgage?
How much is the new property going to cost?
What will the new value be when both are joined?

Terrace. Both 2 bedroom, 2 receptions.
Ours 85k
Owe 15k
Theirs 75k
No idea! (hopefully more than 110though... is this reasonable to hope for? we don't want to make mone, but don't want to lose too much).
Any ideas?!
Thanks!

DVardysShadow

holly_hobby wrote: »

The issue is securing a mortgage on a property that is later to have its title deeds amended/merged with a 2nd unit - the fact that the property to be merged is unencumbered may help.

A chat with a whole of market mortgage broker will help you sound out how the mortgage market as a whole will view the prospect, but you may find that lenders are a little nervous of the deal in case the development actually reduces the value of the secured unit, if not carried out to standards, etc .. etc...

IMHO - the least complicated route, is to finance the 2nd property pch from unsecured funds, merge the title deeds when the conversion has taken place and all signed off, and then remortgage the property as one whole unit to a mortgage lender (repaying the development finance as part of the remortgage).

Hope this helps

Holly

Yes, I think it is important to understand the real issue here. On other threads, the problem is expressed as an issue of having 1 mortgage on several title deeds. This is related to the truth but falls well short of an adequate explanation. Categorically, I can state that having 1 mortgage on several title deeds is not an issue. I have 1 mortgage on 3 titles.

The issue arises from the practical and financial consequences, as Holly indicates, of merging a property with a mortgage to a property on which the lender has no mortgage.

To explain further: The purpose of the mortgage is to allow the lender to repossess and sell to recover its money if the borrower defaults. The lender is in the belief that the property secured under the mortgage is of sufficient value if sold [at a reduced price] as a repo to cover the outstanding loan and all accrued fees.

If 2 properties are joined and the lender does not have the ability to repossess the whole lot, they will be left with half of a joined property. Depending on how the joining is done, the mortgaged part may lack stairs, kitchen, and bathroom. It will need utilities re-separating - gas, water, electricity. It will need opened access to the other half blocking off, the gardens re-separating and possibly a back door reinstating. So possibly as much as £30,000 will immediately be take from the value.

Add to that the probable truth that people doing these kinds of conversions are likely to be quite stretched financially and you can begin to see that the lender will feel that the likelihood of having to repo is higher than normal and that there is potentially a quite substantial loss to be factored in. So it will be quite deeply ingrained into lenders not to do it - although, because the reason is quite technical, you might never get a very good explanation of what the problem is.

So, to do this, you need either to do as Holly suggests or buy, remortgage against both titles and then convert. On the whole, I think I would remortgage the present property at residential rates to finance next door as a Buy to Let, and when I discovered that BTL did not support the rents I wanted, I would convert and remortgage the combined property as residential.

Be aware that the biggest risk for the lender is while you are converting - once converted, the lending is again straightforward.

DVardysShadow

v_g_and_f wrote: »

Do we need to have the houses on one set of deeds? I am also worried that this will cause problems in the future for splitting them? I guess it could be very complicated to split a house in 2 in the future if it is still mortgaged and on one set of deeds?

The utilities are also a concern... will we need 2 standing charges? Has anyone had experience of merging 2 lots of utilites? Is it a costly experience?

Deeds: OK, I believe that merging the deeds or not is no real problem. 1 mortgage can place a charge on many titles. Equally, it is fairly trivial to merge deeds. The real issue is that your lender needs to be able to place a charge on all of the combined property to secure the lending.

Resplitting: If you plan to leave it resplittable, this should not be impossible, but if you take things too far, it may become uneconomic. As mentioned earlier, you will probably have kitchen, bathroom, central heating and stairs to reinstate, and utilities to split.

Utilities: You need to leave 1 set incoming utility points intact, but disconnect the house from them. These utilities will not be chargeable. With electricity, you MUST take care to have only one incoming supply - it is potentially dangerous to have 2 - you can now get a 415V shock instead of a mere 230V. If you plan to be able to resplit the house, this possibility need to be built into all the utilities, particularly your electrical installation.

Other: Don't forget Planning Permission, Building Regs and Council Tax

holly_hobby

You have found that there it will be virtually impossible to secure a mortgage on the 2nd property - with the express intention to then merge it with your existing home, to create a single dwelling.

The main reason why has been touched upon in earlier posts, the merge of 2 residential units into one, may well have a negative effect on the combined value of the 2 units once merged. i.e it won't be a case of simply adding the value of the 2 houses (as they stand) i.e 85k & 75k to obtain the value of them as a single unit. The combined unit may also not be an attractive dwelling for secured finance purposes (discussed a little later in this post).

Further compounded by the issues that will affect any possession order whist mortgaged with 2 sep lenders, in that either property will not be considered as a self contained single dwelling (if on 2 title deeds and/or not correctly converted with permisson & regs), but a type of hybrid - and will be un-saleable until converted back to a self contained status. (which would obv delay lenders disposal and incur their cost to fund the remedial works reqd).

I suspected this, but wanted you to satisfy your self by speaking to a broker to examine the market.

The only possible suitable mortgage I can think of would be a self build (where the lender will release funds at stages depending on build stage . But for the reasons given and part of the works (i.e your current home) already being on a residential mortgage - I can't see a lender going anywhere near it.

You mentioned in your initial post that you don't in fact need a mortgage to purchase the property - and I go back to my original advice to pch for cash, seek your own lenders permission to convert, complete the conversion and have new title deeds drawn, whilst remortgaging at the same time if necessary. But you have to consider whether the combined single unit will be acceptable security for a lender i.e will they be able to easily dispose of the property upon any possession order - they will be guided by their surveyor who may feel that the property (post conversion) isn't an attractive (both visually and/or serviceability) dwelling for the general market - and recommend the lender refrain from securing finance on it.

So before you do go down the road, have a chat with a couple of estate agents, discuss your proposals and try and get a guide as to how they feel the combined unit would be viewed and considered in the general property market. As whilst it is currently attractive to you and your requirements, the lender and even yourself, must consider how easy it will be to sell on if required. (or how easy and the costs involved, it would be to convert back to 2 singular units (simply re-splitting the deeds as part of the convenyencing process).

Have you considered a 2 storey extension on your own ? or a loft conversion into extra bedrooms - which would certainly add value to your own home, yet not affect the fundamental basis of the property - and hopefully avoid the issues you are having with your current plan. (assuming planning consent is granted for any extn or loft conversion of course).

Hope this helps

Holly

v_g_and_f

Sadly Holly, we can not buy both properties outright and although we could buy one, we would only like to do so if we can get permission to convert beforehand from our lender with the remortgage (unlikely).
As for extending, it's another big no. An extension we have had quoted from a number of places would be 45k for the shell only. This would mean pulling the whole rear of the house off and rebuilding half the current ground floor to make the foundations thicker. It would also mean rebuilding all walls in the house that stood standing. We would have to move out for some time and in addition we would need to put our current things into storage. By the time we did all of this, plus redecoration (rewire, plumbing, heating, replaster/ceilings/carpets in every room, kitchen, bathrooms etc) we guess we would be looking at more than 70k on it's own. Worse is that we have just spent a fair bit on doing most of these thigs over the past year or so anyway. We would never ever get that kind of money back, perhaps 10k at the most.
Really the only way that we could stay in our current place would be to convert sideways. Financing is just proving to be the problem. There seems to be so many other posts on here about converting like this - how have these projects been financed? I spoken to people who have done it before (and before we even thought about it) and they all mentioned being with the same mortgage lender... sadly it's a case of finding them to ask more in-depth questions.
As for the security issue, we have always planned to convert in a way which could be easily undone and would cause minimal upheaval to the property. The work would be a doorway (maybe 2), remove a kitchen and that's it. The security would be there for the lender at all times and as I said, they would get 2 houses for the risk of 1... I just need to let them see it that way!