Using equity to buy

Minky_2

Hi there – I’m here to pick your brains if I may.
We live in a one bed ground floor flat with just one other flat above us. We love our flat, location etc. and we really don’t want to move but we really could do with a little bit more room. Any kind of extension is not a possibility and we have looked at moving to a house, but we would be mortgaged right up to the hilt for a very small house (I live in the south east) which we don’t want to do. Especially as the rates are currently so low – the only way is up.
However, there is a possibility that the flat above us will come up for sale. If we could buy it and the leasehold, we could easily turn the property into a large 3 bedroom detached house which would then be pretty much our dream house.
Could we buy the upstairs flat using the equity in the flat we already have? We’ve not got any savings but we do have around £60k in equity in our flat. Having done a quick calculation incorporating values, equity, leasehold purchase cost, current mortgage etc. we could comfortably afford it with room to incorporate any rate increases but only if we can use the 50k equity. Would this be possible?
Thanks

TrickyDicky101

I'm sure one of the knowledgeable brokers/posters will be along with advice in a moment but you do realise that the council may refuse to permit conversion of two dwellings into one? That would result in a reduction of their income (council tax) so it is not a foregone conclusion permission would be granted.

antrobus

As above, you need planning permission, plus there's a good chance that the reason why your current property was build as/coverted into two flats rather than one detached house is because two flats are worth more than one house.

holly_hobby

Was this previously a single dwelling (house) split into 2 flats ?

And are there more than 2 flats in the unit (ie where you have a large double fronted propety, that could effectively be split into 4 S/C flats) ?

If there are only the 2 flats, and this was previously one dwelling, than there is more chance (but no proimise) of planning permission being achieved, if its simply a case of reverting the unit back from a multi to single dwelling.

Thats the easy bit !

The major issues you will have is the fact you essentially have a mortgage on your own flat, which you would need to remortgage to release the equity to facilitate the purchase of the top flat.

Is the 60k you mention the total pch price (ie you would be buying for cash ?), or is this a deposit and you would also need a mortgage on the top flat ?

If its a cash purchase it makes things a bit simpler, if you need a mortgage you are really complicating things ...

This is because you would essentially be changing a self contained flat into a upper residential level comprising of bedrooms and a bathroom (as I would assume you would be removing the kitchen and converting the living areas in to bedrooms), with the floor partly being removed to accomodate an internal staircase.

Which effectively means you will have changed the lenders security from a 1/2 bed (or whatever ) self contained flat, to just bedrooms, a family bathroom and a staircase inter-linking both levels. Which given that you would need the leners permission to conduct the works in the first place, makes it rather clear that they would refuse, even if the plan was to remortgage the entire unit as 1 single dwelling (following amendment of title deeds with LR), with an alternative lender.

This goes, even if you only have a mortgage on your own flat and pch upstairs for cash ... you would still need your own lenders permssion re any structual changes, removing ceilings and fitting linking staircases etc, or anything that would affect the self contained status and security of their charge - which obv your proposal will, given that you'll still have 2 title deeds until you have new deeds drawn with LR. So you're in a pickle with straight resi borrowing..

Some peeps would say, well just get the planning permission etc, and do the works without the lenders knowledge, then remortgage the whole lot as one unit to another lender (as noted above) ... but that wouldn't be my advice, given that you would be in breach of your mge t&cs if the lender became aware of the works.

Exercises like this (inc changing from 1 unit to flats) are pretty common, BUT, you tend to find its self funded individuals or builders/professional renovators whom are involved, they having access to their own and/or commercial capital to fund the build - for Joe Bloggs its a little harder due to the above constraints briefly discussed.

An alternative could be to pch the upstairs for cash, and remortgage your own flat to a lender via buildstore, whom are an out and out refurb/renovation/self build lender, perhaps a phone call, and a brief outline of your plans will allow them to advise who would be in the market for this (or not as the case may be) - and thats all assuming that you would pass affordability and status checks !

NB - don't forget following conversion 1 family home may be worth less than the 2 individual flats. And before you strart incurring any broker/mge/architect fees, I would run this past your local planning dept to get a feel for how they may view it .... as to proceed with everything else would be a waste of time and money if planning permission was refused.

Hope this helps ... good luck !

Holly x

PS - apols for length of post !! H x

Minky_2

Thanks for your replies. Really helpful stuff there.

There are only 2 flats in the unit but they are purpose built so the unit was never originally a house although from the outside, you would think it had been.

Fortuitously, the layout inside the flats means that there is minimal building work actually needed. The staircase in the top flat property is in such a position that by knocking through an archway from our hallway we’d have access to the top flat. (We’d obviously get it looked at before knocking walls through) and yes, we’d convert the kitchen into a bedroom.

There is a large driveway to the side of the house that can comfortably fit 4-5 cars (currently shared by the flats) and there are details in the lease that show originally there was supposed to be a garage built there. We’d look to build a double width garage with parking in front. Coupled with the property becoming a 3-4 bedroom detached house in a private road, I think it would be probably be of greater value as 1 house rather than 2 flats.

However, the 60k is the equity we have in our flat so we would need the same again in a mortgage to buy the top flat and the leasehold. I can see what you mean though in respect of changing the lenders security – I hadn’t thought about it in that way.

jennifernil

You would be effectively remortgaging your present flat to release the £60k equity, and needing an additional £60k to purchase the upper flat, so your mortgage would then be equal to current mortgage + £120k, plus you would need some extra for fees and the conversion.

If the finances stack up and you can obtain the necessary permissions, it is certainly worth considering.

holly_hobby

Minky wrote: »

There are only 2 flats in the unit but they are purpose built so the unit was never originally a house although from the outside, you would think it had been.

Then planning permission may not be granted, I also forgot to mention the leasehold issues, if you aren't currently and won't be the freeholder of the current and then converted dwelling.

Minky wrote: »

However, the 60k is the equity we have in our flat so we would need the same again in a mortgage to buy the top flat and the leasehold. I can see what you mean though in respect of changing the lenders security – I hadn’t thought about it in that way.

Well I'm sure you are aware that you won't achieve 100% remortgage or further advance release (in fact 85% would be a typical rmg fig, income supporting of course), so if all the capital to be used in the build etc, is currently tied up in your own residence, you'll have to put this exercise on the back burner and/or save more (and thats assuming you can also achieve lender permissions (doubtful if not a speci renovation mge ).

The fact that you also want a mge on the upper flat, also really rules this out for me for the security reasons I've already noted (unless you source commercial development finance) - unless you can get the same mge lender under 2 separate renovation mges to agree (doubtful given exposure).

I do feel this may well be unachieveable on residential basis, commerical developers finance may be more appropriate given the works, but will still have its issues ...... you do need an experienced self build/commercial broker on this, as I say you could also run it by Buildstore http://www.buildstore.co.uk/

Holly x

Minky_2

I think I'll have a chat with the planning office to see if this is a possibility.
I factored in buying the leasehold for both properties in the calculations of the new mortgage required. We have previously enquired with the freeholder as to whether we could buy it and they were receptive to it.
As the property isn't yet for sale, we'll save like crazy on the hope we'll have a lot more saved (if the PP comes through as possible yess) I will go check out buildstore too.
Thanks for all your help. Really appreciated.

TrickyDicky101

I wouldn't necessarily tell the f/h what you are intending as that might encourage him to put the price up