Rather complex re-mortgage question on a property I bought with a company loan

Big_Zee

Hi,

This is a rather complex question relating to a property I purchased with a company directors loan last year.

I bought a large house which is (conveniantly) split into 2 separate flats last year. The property was bought as a single freehold, as the flats were not separated as different leaseholds on the deeds. In this situation you would normally have one (or both) of the flats on a leasehold, however as the owner had had it in his family for years, it was just a single freehold.

Getting a normal residential mortgage on a house that is clearly 2 seperate flats (each have their own external door, and not internally connected), is virtually impossible, so I took out a directors loan to pay the full amount in cash. Doing a cash deal, and the fact the property was being marketed as 'one large house', which was almost impossible to get a mortgage on, meant that the price I got it for was very low compared to what it would be worth as 2 seperate properties (as a rough guide, on a £ per square foot ratio, I purchased at half the local rate - even though this is in a prime waterfront location where the £ per square foot rate would be a lot higher than the average).

It has now come to the point where I need to pay back the company loan, and to do so I need to mortgage the property, to do so.

My question relates to the most beneficial way I can do this to get the highest amount of mortgage ratio. I borrowed the entire value of the property as a loan, and have used any saving I had in completely renovating the bottom flat, and various cosmetic improvements to the top flat - so I need to get as high valuation as possible, as effectively, the only 'cash' I have is in the difference between what I paid for the property and its new real value split into 2 seperate flats.

We currently live in the top flat, and the bottom flat is undergoing complete renovation, with the idea of letting it out either on long lease or holiday lets.

So my thoughts are to do this as follows:

1/. Get new deeds drawn up, where the bottom flat is on a leasehold, and the freehold is on the entire property.

2/. Get a residential mortgage on the freehold of the entire building, and a buy to let mortgage on leasehold bottom flat.

My question though is to get your thoughts on this in general, and if you can see any pitfalls. I also wonder if there is a "best way" of doing this in order - I get the mortgage first on the residential freehold, and then the buy to let on the downstairs flat - or vise versa ?

My other concern is how I get a 'real' valuation on the properties for mortgage purposes, as I would be concerned I may get very low valuations - flats very close by, the same size as the bottom flat, have been sold for not far off the same price as I paid for the entire property, so I know that sold seperately the total value would be much more than what we paid for the entire house - but how do I make sure the mortgage companies see that?

Your thoughts would be much appreciated.

Thanks in advance.

holly_hobby

Right ...

At present you have 1 building, with 1 freehold, which happens to have been sub-divided into 2 separate living and fully self contained (?) flats, and is unencumbered (ie has no charge registration re your director loan funding the pch ?).

As you have discovered, in its current format you will not source a residential, semi-comm mge.

So first things first .... did you check when you purchased that the vendor had planning permission, and sign off etc, for the conversion from 1 single dwelling into multi use ?

If you did and it has great, if not you will have to obtain this (on a retrospective basis), before you may re-finance onto a residential or buy to let mge arrangement.

So, lets assume the conversion was done with full planning permission and/or you have subsequently obtained it.

You now need to split the title deeds, and have both flats held on leasehold (which means that they are ready to sell independently when/if you choose to the widest audience, as mortgages for freehold flats are impossible (except in Scarborough area). You will also be the freeholder, which will be the case even if you move out and sell your flat (unless of course you sell on the freehold to A N Other/flat owners, where a property management co is usually used to manage property issues under the fhold.

Once the flats are both leasehold, you can see to re-finance 1 or both of them.

Your flat will be a residential unencumbered remortgage mge, the 2nd flat will be a buy to let unencumbered remortgage ... you may also find that you need to use different lenders for each arrangement, due to percieved over exposure for 1 single lender for the whole unit.

Affordability on your resi unit will be based on your income (SA302s as a co director), with the BTL on rental income at 125% of the mge interest on a patyrate of 6% (some lenders have a min income of 25k).

With regards to valuation, the surveyor for each mge company will assess the flat, and obtain local comparibles - you may ask to challenge a low valuation, but you need cast iron evidence of recent (ie last 6 mth sales), of identical or near identical units, which support your increase request.

Although you could sort the deeds issues directly with LR, personally to ensure this is done correctly and asap, I would engage a conveyencer to assist with the splitting of deeds, leasehold and freehold arrangements - which although could be done sequentially to the remortgage, again I personally would have this completed prior to application in case of unforseen complications.

With regards to the mges, I would source a whole of market broker, to assist with your residential and/or BTL remortgage.

Hope this helps

Holly

Dave_Ham

Ok, very bold to purchase this outright with no specific exit route although looks as if this can all be managed.

As Holly correctly says, my view would be get a Solicitor to split the deeds and have both as leasehold.

One salient point is raising finance by way of a mortgage within 6 months of purchasing is only allowed by a handful of lenders, so be mindful of this if this is applicable in your case.

In terms of maximising valuation, ensure the Surveyor fully understands how and why you got the property cheaply as this will otherwise rely upon previous sale price...

All the best