How to finance converting two flats back into one detached house?

Wigglybeezer_2

We live in and own ( mortgage free) the top half of a listed, early Victorian detached house in a nice street in an up market small town. We have the opportunity to buy the flat downstairs as the elderly owner has died. We are attempting to go forward with a private sale to avoid the Scottish closed bid system.

Should we re- mortgage our own flat or takeout a new mortgage?

We are intending to convert back to one house as large period properties are more in demand in our area (virtually next door to popular independant school!) than flats.

We don't intend to rent the flat out.

We are company directors and will have to go to a specialist broker but would like to have thought through as many options as possible.

It is going to be a stretch financially ( well we can afford the repayments but will only just get a big enough mortgage as we count as self employed and have to put a large deposit down).

We are regarding this project as part of planning for retirement as we are mid forties.

Should we do it?

Wigglybeezer_2

I forgot to add that we could do with more living space too!

ACG

Raise the finance against your existing property, im wondering whether home improvements would be a lie??? You would need to check with the lender.

This shouldnt be too difificult, but its probably best to not tie into any long deal as you could potentially remortgage once the 2 properties have been merged for a lower LTV - meaning potentially a better rate.

TrickyDicky101

you'll need lender's permission to undertake the conversion as the nature of the security will materially change.

i assume you are confident you will get planning permission to enact the reduction in chargeable properties?

Wigglybeezer_2

It was originally a single house ( although a long time ago ) and we could convert it back without altering the exterior or making big changes to the interior layout as the space where the stairs once was remains unused, we therefore don't foresee any trouble with permission.

I was thinking it would be better to remortgage as if we owned downstairs outright we would have the option to rent it out for a while without having to get a buy to let mortgage or informing lenders etc. we might do this while getting plans sorted etc.

What are the other advantages of remortgaging rather than getting a new mortgage?

Wigglybeezer_2

I suppose developers would use a bridging loan for this type of situation but that is a bit too scary for us!

ACG

Bridging loans arnt scary, its just a short term mortgage albeit at a higher rate.

There are numerous options here, its probably not a bad idea to sit down with a broker and let them speak to some lenders.

antrobus

TrickyDicky101 wrote: »

......i assume you are confident you will get planning permission to enact the reduction in chargeable properties?

That would be the first important question to answer.

The second important question to answer (irrespective of what kind of properties are "in demand") would be what would be the difference between the (a) value of two flats and (b) the value of one house? It's going to be tricky to fund if (a) is greater than (b)

Wigglybeezer_2

Our best estimate is separate values £380,000, combined value £450,000- £500,000. As we live in a very small town there are long gaps between very similar houses coming on the market so it is impossible to make a very accurate comparison. An added attraction is that alterations to listed building, such as putting in a staircase, are 0% rated for VAT. As it is the lowest level of listing and we are not altering the interior planning should not be a problem.

TrickyDicky101

When we say you need planning this is because the council will view it as a reduction in their income (nowt to do with Grade II status) as they go from two Council Tax paying properties down to one. They may therefore not permit this (meaning should you go ahead you are saddled with two council tax bills rather than just the one). If the council don't permit this, then lenders would be unlikely to as it would impact resale.

Wigglybeezer_2

Hadn't thought of that, assumed that as the rateable value would be reassessed when the titles are merged and the property remortgaged as one house the council wouldn't lose out as the new RV would be much higher ( probably about the same as the two combined at present).

We have various alternative plans for using the flat which would allow us to benefit from the extra space when we most need it, improve both halves of the property and then separate them again later when we need to downsize on retirement. We would have to find a way of linking the two properties internally that was acceptable to lenders, insurers and building regs though.

Alternatively we buy downstairs have plans drawn up for a more substantial conversion project and sell it on to someone with deeper pockets than us ( would have to watch out for capital gains if we did this without linking the two flats and uniting the titles first.

I think I had better phone the planning dept again for more clarification.