BTL Mortgage on house split into flats - Mortgage Experts please!

Richard_Webster

I keep seeing posts, mainly on other forums from people who have a house which they want to split into two flats and then remortgage both on BTL mortgages. They want to have 2 mortgages and ask how they can create "two sets of deeds", by which I assume they mean leases.

There are significant legal costs in creating leases and if the person owns the freehold he would have to grant any lease to himself and another because you can't grant a lease to yourself! So it would be easier from a legal point of view just to have one mortgage on the freehold to save creating the leases just for mortgage purposes.

So I'm just interested to know why it isn't possible for a BTL lender to make one loan on a freehold house divided into more than one unit. If there are two units there is less chance of both being vacant, so I would expect the risk to be slightly smaller, and they can assess the aggregate likely rental value for their criteria, so what is there to stop this happening?

Is this a lender issue or is it simply that borrowers have not thought they could have one loan on more than one dwelling unit?

I would be grateful for some feedback from mortgage experts on this.

As a conveyancing solicitor I believe the information given in the post to be useful but I accept no liability except to fee-paying clients.

clutton_2

with a single loan - how would a lender resolve a situation if one tenant defaulted on the mortgage and they needed to repossess only one of the flats ?

casperlarue

We have just gone through this scenario, the lender insisted on the leases being registered at Land Registry before they would release mortgage funds because their security is in the leases not the freehold. However, if we didn't own the freehold they could not have insisted the leases be registered first!

alexwebpro

To do this correctly you must create separate leases. When I bought my flats the builder created the leases prior to purchase he let me decide how long each lease would be for and what the ground rent would be then his solicitors sent the info to mine. The mortgage companies generally will not lend on flat freeholds so it is imperitive that things are done properly. My solicitors dealt with each flat purchase plus the transfer of the freehold which was transfered for a nominal fee. Limited companies can be used for the purpose if you are planning on renting the flats but not selling them. So technically it can be the freeholder. (A limited company has a separate legal identity)

I am now trying to convert a house into two flats and seeking planning permission for this. My difficulty is assessing whether in the current climate two flats are easier to sell than one house taking into account the HIP requirements and also the fact that mortgages are limited and that this might hit house buyers harder than flat hunters. At present I am not sure what to do whether to convert or to retain the single house but extend it.
Either way I'd need planning permission. I may let the planning people steer me. It is possible that they may not approve a conversion but will accept an extension.

If any estate agents could advise on what would be the better option for the Friern Barnet area I 'd be interested.

cheers!

Richard_Webster

I still think that some people are missing the point. If you have a freehold building the fact that it is split into two flats which are let on ASTs simply means that the freeholder is getting two sets of income. There really is no reason in principle why a lender should not lend on the freehold on a BTL basis. They can do their mortgage payment x 130% <= rents type calculation in the same way as usual.

with a single loan - how would a lender resolve a situation if one tenant defaulted on the mortgage and they needed to repossess only one of the flats ?

One tenant wouldn't have a mortgage - people with ASTs don't have mortgages, do they? The freeholder would receive rent from two tenants and should pay the mortgage out of the rent. If one tenant deosn't pay the rent there is a good chance the other one will still be doing so, so in my view the risk for the lender is slightly less because it is less likely that both flats will be vacant at the same time.

My understanding is that some lenders will lend on such a house divided functionally into two flats with no leases, but others insist on two separate loans on two separate flats (and therefore the pain of having to set up otherwise unnecessary leases).

Perhaps a mortgage expert could update us on the present position.

neverdespairgirl

Richard - you might find more answers on the mortgage board here on MSE?

jamessenior

Hi guys, just read some of your concerns with regards to securing one mortgage against 2 dwellings.

I am currently trying to do this for some of my clients at the moment and it is proving to be quite difficult. The Mortgage Works used to do this sort of thing on a semi commercial basis but unfortunatley have now ceased this. Once again so did Platform Homeloans but they have now changed their criteria. They now allow one dwelling with 2 kitchens and a surveyors confirmation that this is so.

I am still on the hunt and I am sure there will be one or two mortgage companies that may allow this sort of thing. As soon as I find them I will post a comment for all to see.

Thanks, James.

Ilian2008

Some lenders do lend against a freehold ubecjt to say 5 flats on AST's. The Mortgage Trust used to do it. Id speak to brokers and they would hunt around find some. I suppose lenders just feel that a block of flats on AST's are less marketable maybe

Debt_Free_Chick

Richard_Webster wrote: »

I still think that some people are missing the point. If you have a freehold building the fact that it is split into two flats which are let on ASTs simply means that the freeholder is getting two sets of income. There really is no reason in principle why a lender should not lend on the freehold on a BTL basis. They can do their mortgage payment x 130% <= rents type calculation in the same way as usual.

I understand exactly where you're coming from

Not a mortgage expert and just offering a suggestion .... perhaps it's simply because there are two completely separate dwellings? And perhaps that alone is reason to have separate deeds, too?

Richard_Webster

Not a mortgage expert and just offering a suggestion .... perhaps it's simply because there are two completely separate dwellings? And perhaps that alone is reason to have separate deeds, too?

No - A Council tower block can have umpteen dwellings in it but (unless any have been sold) and the Council will only have one set of deeds for that block and maybe in some cases for several hundred acres round it.

Terraced houses built round about 1900 were often built by a builder who bought say 6 plots and he would build a terrace of 6 and let these 6 out to weekly tenants on 6 tenancy acquirements. The principle is no different. Eventually the houses might be sold off singly but while they were owned by the builder there would only be one set of deeds for all 6.

Principle the same here.

petrabas

Richard

have just posted the following under mortgages - wonder if you got anywhere with above query that might help me?

Advice needed please.

We offered asking price on a 1930's house 'curently arranged into 2 units'. (work done in 1939). Our sole intention is to make it a family house immediately. All was going well until lenders underwriter suddenly put brakes on it. Only way forward they say is to take out divide and upstairs kitchen before they will lend. Council say no issue with work being done - they would welcome it and no PP needed. Obvioulsy we cant do works on a property we dont own yet.

We were proposing we get the works done between exhange and complete - max 2 days work and approx £3k max - lender says while the used to do this - not any more.

Anyone ever come up against something like this? Would all lenders be the same? any advice/experience welcome as we can feel this house slipping away.........