Can we mortgage one flat if we own whole freehold?

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  • Can we mortgage one flat if we own whole freehold?

    I bought a top floor maisonette (leasehold) in 1995. In 2001 myself and my husband purchased the freehold and decided to live in the ground floor flat. We want to mortgage the freehold but have been advised by our solicitor that we are attempting to mortgage a “freehold flat” which is unacceptable to the Bank of Scotland. They have suggested that a lease is created for our flat and the mortgage be on this instead. Is this advice correct as it sounds costly?

    Any assistance is much appreciated.

  • #2
    Originally posted by Monkey2561 View Post
    I bought a top floor maisonette (leasehold) in 1995. In 2001 myself and my husband purchased the freehold and decided to live in the ground floor flat. We want to mortgage the freehold but have been advised by our solicitor that we are attempting to mortgage a “freehold flat” which is unacceptable to the Bank of Scotland. They have suggested that a lease is created for our flat and the mortgage be on this instead. Is this advice correct as it sounds costly?

    Any assistance is much appreciated.
    When you purchased f/r, what was done about the two leases? Were they both merged, or do they both exist?
    JEFFREY SHAW, solicitor [and Topic Expert], Nether Edge Law*
    1. Public advice is believed accurate, but I accept no legal responsibility except to direct-paying private clients.
    2. Telephone advice: see http://www.landlordzone.co.uk/forums/showthread.php?t=34638.
    3. For paid advice about conveyancing/leaseholds/L&T, contact me* and become a private client.
    4. *- Contact info: click on my name (blue-highlight link).

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    • #3
      Hi Jeffrey

      The property is a house converted into top and bottom flat (maisonettes). There is only one lease and that is for the top floor flat (which I own myself and intend to sale on). The Freehold deeds state that the freehold includes the bottom floor flat (our home). There is no lease for this flat.

      At present we need to mortgage in both mine and my husband's name (owners of the freehold) due to salary and therefore I don't see why the solicitor needs to create a lease for the bottom floor flat which they say can't be in our joint names anyway.

      Just to clarify, we own the freehold for the whole building/land (no.3) and live in the ground floor flat (which is also called no.3). The top floor flat is no 3a.
      Last edited by Monkey2561; 22-06-2008, 13:21 PM. Reason: Additional Information

      Comment


      • #4
        Originally posted by Monkey2561 View Post
        Hi Jeffrey

        The property is a house converted into top and bottom flat (maisonettes). There is only one lease and that is for the top floor flat (which I own myself and intend to sale on). The Freehold deeds state that the freehold includes the bottom floor flat (our home). There is no lease for this flat.

        At present we need to mortgage in both mine and my husband's name (owners of the freehold) due to salary and therefore I don't see why the solicitor needs to create a lease for the bottom floor flat which they say can't be in our joint names anyway.

        Just to clarify, we own the freehold for the whole building/land (no.3) and live in the ground floor flat (which is also called no.3). The top floor flat is no 3a.
        OK. So you can mortgage any of the following:
        1. Entire house as single freehold PLUS the upstairs lease.
        2. Upstairs lease only.
        3. Newly-to-be-created downstairs lease (NB: f/r must be in different permutation of names from leasehold, e.g. put f/r into sole name so he/she then grants lease to joint names).
        JEFFREY SHAW, solicitor [and Topic Expert], Nether Edge Law*
        1. Public advice is believed accurate, but I accept no legal responsibility except to direct-paying private clients.
        2. Telephone advice: see http://www.landlordzone.co.uk/forums/showthread.php?t=34638.
        3. For paid advice about conveyancing/leaseholds/L&T, contact me* and become a private client.
        4. *- Contact info: click on my name (blue-highlight link).

        Comment


        • #5
          Thank you so much Jeffrey. Out of interest, at present do I own what they call a "freehold flat"?

          Comment


          • #6
            Originally posted by Monkey2561 View Post
            Thank you so much Jeffrey. Out of interest, at present do I own what they call a "freehold flat"?
            No. The "flying freehold" problem is where you own ONLY a freehold slice of building but don't own above and- more important- below it.

            As you do own the whole freehold, your upper flat is not a flying freehold even if you merge the lease (to leave a single whole-house freehold).
            JEFFREY SHAW, solicitor [and Topic Expert], Nether Edge Law*
            1. Public advice is believed accurate, but I accept no legal responsibility except to direct-paying private clients.
            2. Telephone advice: see http://www.landlordzone.co.uk/forums/showthread.php?t=34638.
            3. For paid advice about conveyancing/leaseholds/L&T, contact me* and become a private client.
            4. *- Contact info: click on my name (blue-highlight link).

            Comment


            • #7
              For clarity, the option (number 1) about mortgaging the entire house, would Bank of Scotland's charge then be on both the freehold title and the existing top floor leasehold title?

              Comment


              • #8
                Originally posted by Monkey2561 View Post
                For clarity, the option (number 1) about mortgaging the entire house, would Bank of Scotland's charge then be on both the freehold title and the existing top floor leasehold title?
                Yes, although it is effectively the same as merging the lease to produce a single title (freehold, not a reversion) for entire house.
                JEFFREY SHAW, solicitor [and Topic Expert], Nether Edge Law*
                1. Public advice is believed accurate, but I accept no legal responsibility except to direct-paying private clients.
                2. Telephone advice: see http://www.landlordzone.co.uk/forums/showthread.php?t=34638.
                3. For paid advice about conveyancing/leaseholds/L&T, contact me* and become a private client.
                4. *- Contact info: click on my name (blue-highlight link).

                Comment


                • #9
                  Solicitor who originally advised has not read the Council of Mortgage Lender's handbook - the relevant section with Bank of Scotland's views on the point in question is as follows:
                  Other freehold arrangements

                  5.5.3 Unless we indicate to the contrary (see part 2), we have no objection to a security which comprises a building converted into not more than four flats where the borrower occupies one of those flats and the borrower or another flat owner also owns the freehold of the building and the other flats are subject to long leases.

                  5.5.3- Do you lend in these circumstances?
                  Yes
                  However, there does seem to be confusion amongst solicitors etc on the point, and this does regrettably mean that you may end up creating a lease later in order to sell the flat without causing this unnecessary confusion, in favour of technically different people as explained by Jeffrey:

                  (NB: f/r must be in different permutation of names from leasehold, e.g. put f/r into sole name so he/she then grants lease to joint names).
                  RICHARD WEBSTER

                  As a conveyancing solicitor I believe the information given in the post to be useful (provided it relates to property in England & Wales) but I accept no liability except to fee-paying clients.

                  Comment


                  • #10
                    Thank you both ever so much for your responses on this. Next time I will be coming straight to your firms!

                    Comment


                    • #11
                      Originally posted by Monkey2561 View Post
                      Thank you both ever so much for your responses on this. Next time I will be coming straight to your firms!
                      That'd be a long journey, as Richard's in Hampshire and I'm in South Yorkshire!
                      JEFFREY SHAW, solicitor [and Topic Expert], Nether Edge Law*
                      1. Public advice is believed accurate, but I accept no legal responsibility except to direct-paying private clients.
                      2. Telephone advice: see http://www.landlordzone.co.uk/forums/showthread.php?t=34638.
                      3. For paid advice about conveyancing/leaseholds/L&T, contact me* and become a private client.
                      4. *- Contact info: click on my name (blue-highlight link).

                      Comment


                      • #12
                        I seem to have a similar situation with Northern Rock.

                        I'm looking to take out a mortgage on a freehold property (in my name), which is newly converted into 2 maisonettes (no leases).

                        I have spoken to their In house Mortgage advisor who has explained that the property would require a separate lease for each flat.

                        Is the policy lender specific? and how do I check that this is indeed NR's policy?

                        As highlighted by the OP's situation, mistakes can be made and I wouldn't be best pleased to have carried out the legal work unnecessarily.

                        Comment


                        • #13
                          Mortgaging a single whole-building freehold property ought not to cause any problem.
                          The problems arise only for a part-building freehold (viz. a building severed horizontally).
                          In that case, the "flying freehold" makes it largely unmortgageable.

                          If you want to mortgage only part, yes- you would need to create a lease (of one flat which would be the mortgaged property).
                          JEFFREY SHAW, solicitor [and Topic Expert], Nether Edge Law*
                          1. Public advice is believed accurate, but I accept no legal responsibility except to direct-paying private clients.
                          2. Telephone advice: see http://www.landlordzone.co.uk/forums/showthread.php?t=34638.
                          3. For paid advice about conveyancing/leaseholds/L&T, contact me* and become a private client.
                          4. *- Contact info: click on my name (blue-highlight link).

                          Comment


                          • #14
                            Originally posted by jeffrey View Post
                            Mortgaging a single whole-building freehold property ought not to cause any problem.
                            The problems arise only for a part-building freehold (viz. a building severed horizontally).
                            In that case, the "flying freehold" makes it largely unmortgageable.

                            If you want to mortgage only part, yes- you would need to create a lease (of one flat which would be the mortgaged property).
                            Makes perfect sense.

                            The problem for me, appears this lender, insists on separate leases.

                            I've since been reading the small print in one of their BTL pamphlets and it states

                            Flats and Maisonettes must be Leasehold (except in Scotland).
                            I have no idea why this would be a requirement, either legally or from a commercial point of view.

                            They would have 1st charge over a property sub divided into 2 maisonettes, which interestingly is described on the title deeds as 2 separate units (top maisonette is suffixed with an 'a' in the address eg. "67 and 67a The road"

                            If I still decide to opt for this lender, what is the cheapest/quickest route to fulfil their requirement?

                            Comment


                            • #15
                              Originally posted by CoffeeCup View Post
                              Makes perfect sense.

                              The problem for me, appears this lender, insists on separate leases.

                              I've since been reading the small print in one of their BTL pamphlets and it states



                              I have no idea why this would be a requirement, either legally or from a commercial point of view.

                              They would have 1st charge over a property sub divided into 2 maisonettes, which interestingly is described on the title deeds as 2 separate units (top maisonette is suffixed with an 'a' in the address eg. "67 and 67a The road"

                              If I still decide to opt for this lender, what is the cheapest/quickest route to fulfil their requirement?
                              1. If there is a property unsevered, there are no separate ownerships- just the freehold.
                              2. If the upper lease is merged first, ditto.
                              3. If mortgagee wants only flats as security, i.e. two mortgages (one on each), create lease of lower flat to parallel the existing upper-flat one.
                              4. Yes- "flats and maisonettes must be leasehold" but that assumes separate HMLR titles and does not prohibit merger back into a property unsevered- when there would be no flats/maisonettes, in conveyancing terms at least.
                              JEFFREY SHAW, solicitor [and Topic Expert], Nether Edge Law*
                              1. Public advice is believed accurate, but I accept no legal responsibility except to direct-paying private clients.
                              2. Telephone advice: see http://www.landlordzone.co.uk/forums/showthread.php?t=34638.
                              3. For paid advice about conveyancing/leaseholds/L&T, contact me* and become a private client.
                              4. *- Contact info: click on my name (blue-highlight link).

                              Comment

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