Buying house already converted into 2 flats

[ftb_lhr]

Hello, I am a first time buyer and I am looking at buying a house already converted into 2 flats in title and practice (utilities/gas/council tax etc already split and ready for separate occuption).

I have about 20% deposit though I can push to 25% if really necessary. My intention is to reside in one of the flats and let out the other half - in theory this should increase my mortgageability due to reduced risk but in fact it seems lenders are quite hesitant for this arrangement! I am not quite sure what product is suitable for this and whether it is even possible, as FTB cannot get a BTL mortgage as I understand? From some research, the only option seems to be an (expensive) bridging finance structure, summed up as follows:

"The sensible solution would be to purchase with short term bridging finance , then create a holding company for owning the Freehold of the property as you cannot grant yourself a lease , create two separate leases with their own respective Ground Rents and Service charges , ensure that each unit is 100% self contained then once you have completed these , apply for a residential mortgage for the unit you wish to occupy (dont be foolish and make a false declaration of your intent to occupy when you may be wanting to rent it out) and then with another lender get a Buy to Let mortgage or just sell it as a self contained flat with its own lease."

As this was some years back, I wanted to check on the latest situation and what my options are. As an inexperienced FTB your advice very welcome.

[landlord-man]

1st thing is make sure both have EPC C (high end) or better.

Many LLs are selling low EPC properties like this due to legislation changes coming.

[Hudson01]

1st thing is make sure both have EPC C (high end) or better.

Many LLs are selling low EPC properties like this due to legislation changes coming.

Totally agree, we do not have a definitive paper yet but given the current govt's commitments to lowering our overall carbon footprint this is a sure fire rule that will hit us, any buyers who intend to live in the place are fine but for rental...... not a chance would i be buying now, i am looking to sell in about 5 years due to this as mine will not get up to a C unless i spend a mad amount of cash, so it's selling for me.

[Hooper]

Bear in mind that mortgaging multi unit freehold blocks MUFBs is always considerably more expensive as there are few lenders. If the vendor is cooperative you could investigate buying the freehold in a separate name (perhaps an Ltd or joint with someone else) and the leases for the two units separately in your own name. Then both of the flats are vanilla borrowing.

[ftb_lhr]

The EPC retaing definitely needs to be checked. I have seen this house marketed as 2 independent flats for near 14 months now (chain free). Notwithstanding the freehold LTD and flats leasehold "vanilla" I would still need a BTL mortgage somewhere to rent it out? How would this work?

[Hooper]

You would simply own two leasehold properties on which you could get separate mortgages. You could get the best owner occupier rates on the one you live in and a BTL on the other one. You would not need a mortgage on the freehold.

You can own both leases but the freehold needs to be in a different name. It could be a limited company or LLP. Or it could be your name along with a second name - e.g. wife / partner. I suspect you would need a decent solicitor rather than a standard cheap fixed fee conveyancer. If you try to do this after purchase you will have to pay stamp duty again (if any) when you create the leases.

I should add that I have not done this - but I regret not having done this. My interest rates have been between 50-100% higher because I own the full block.

If it's been marketed for 14 months I'd be extra cautious given the market is quite active.

[loanarranger]

Unfortunately Hooper your assertions that having a Freehold with two separate leases should make your proposition more attractive for a lender, unfortunately this may not be possible as it could be assumed that the rental element could be converted back to a single residential unit; it certainly isn’t straight forward where two houses next door to each other and to be mortgaged as BtL’s finds lenders proving reluctant to consider notwithstanding the low loan to value.
I am stopping short from sayingit is an impossibility but the broker is certainly going to earn his fees in sourcing a lender(s) and the processes to be adopted to bring the applications to completion the only certainty is that the rates will indeed be much higher than the conventional

[Gordon999]

Best to check Land Registry online website with postcode of your property address and see whether the property is covered under one "freehold title" or one "freehold title plus two separate leasehold titles".

If there is only one freehold title for whole building , then you should apply to one of the banks such as Nat-West or Barclays for mortgage.

If there are two separate leasehold titles ( one title for each flat), then you will need to apply residential mortgage loan for the flat to live in and apply for BTL Mortgage loan for the rental flat from different mortgage lenders.

[ftb_lhr]

Thanks all. My main motivation as a first time buyer is to exercise my FTB (stamp duty) advantage on a larger house. If it is mortaged as 2 leasehold units (which I assume is necessary because they are distinct flats within the house) then this is effectively 2 separate purchase transactions? Meaning that I would not really save on stamp duty?

[jpkeates]

You'd have two properties at the end of the transaction, so the additional SDLT would be due on the one you don't live in.

[ftb_lhr]

Ah... well all things considered it seems to make more sense for me to purchase, extend and then split if I desire this arrangement. From what I hear materials and labour inflatoin along with contractor lead times seem to be pretty high at the moment. Of course, all this assuming I can actually even get permission for the conversion.

[loanarranger]

Sorry fab-1hr
Am I missing something from your last post, I along with other contributors were being told that the building had already been converted into 2 senate units so what does “purchase, extend and then split”, Sorry I am confused.

[ftb_lhr]

Sorry fab-1hr
Am I missing something from your last post, I along with other contributors were being told that the building had already been converted into 2 senate units so what does “purchase, extend and then split”, Sorry I am confused.

Apologies for coming back to this so delayed, I needed some time off and I am still dithering losing money on rent waiting as a FTB.

You are absolutely correct, what I meant is optimally reducing the SDLT by starting from scratch with a new house. However, still considering the above transaction (already converted units for sale), I investigated a bit further and I am slightly confused at the SDLT due for multiple purchases when factoring in Multiple Dwellings Relief.

Looking at the HMRC gov example here, it suggests the "higher rate" is a minimum of 1% of total transaction value when mutiple dwellings are purchased in one transaction.

1. I assume this would qualify for Multiple Dwellings Relief? i.e. Buying the Freehold outright + 2x leaseholds in my personal name. Forgetting an SPV for now.

2. How would I work out the total SDLT due? Would I receive any relief as FTB considering the total is above 500K?

https://www.gov.uk/guidance/stamp-du...iple-dwellings

Following this example, say I was to purchase at 700K. I'm a bit confused on factoring in the "additonal 3%" which would normally be due on a second purchase. Or is the whole point that the "higher rate" after MDR would be minimum 1%? Then following the MDR formula I have:

Average price = 350K. Ordinary SDLT on 350K = 7.5K. 1% of total value = 7K.

3 possible outcomes:

1. No FTB relief as total is over 500K: Thus SDLT on 700K = 25K + 7.5K for MDR = 32K. This does not sound right.

2. On the other hand, 2 separate transactions at 350K = 2.5k (with FTB relief) + 18K (with adidtional 3% rate) 20.5K.

3. Or is it actually the best case? i.e.

Average price = 350K. FTB relief applies so 2.5K x 2 = 5K. Minimum of 1% = 7K total due. Alternatively, FTB relief does not apply so 7.5K x 2 = 15K total due.

Is there any way I can maximise my FTB relief in this transaction? Obviously I appreciate my best advice would be from a professional tax lawyer to avoid any nasty surprises.

[loanarranger]

Let’s get back to basics, you can acquire the Freehold in a separate entity creating two long leaseholds, one you will raise a 1st time buyer mortgage and if possible a second mortgage as a BtL, downside is that the BtL will attract the SDLT premium as you will own the freehold via a separate entity. So subject to getting two lenders to facilitate the separate borrowings one of which will be a BtL then your problems might be overcome , but forget the tax concessions you are seeking, the potential benefit is that one way or another you will own the Freehold with two long leasehold properties, one being owned as a private residence. I still believe you might experience problems in raising such funding but I wish you all the very best.

[ftb_lhr]

loanarranger,

Thanks again for taking the time with this. I'm quite serious about this property as it ticks many boxes (family etc). Just so I understand the ownership structure for this transaction:

1. I would form a separate entity (SPV) to acquire the freehold which is already spilt into 2 leaseholds. Is there SDLT due on this element?
2. I would own both leaseholds in my personal name, 1 with vanilla borrowing residence and 1 as a BTL.

I understand the above would all form a single "linked transaction" for the HMRC? In terms of specialists who could advise on this professionally, would I approach a mortgage broker? Obviously, I wouldn't want to spend on advisory fees at this stage unless it is a realistic prospect. A big part of my affordability is the SDLT due! Every piece of research I've done seems to indicate Multiple Dwellings Relief is applicable in this case?