Buying house already converted into 2 flats

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  • ftb_lhr
    replied
    Originally posted by Gordon999 View Post
    Are you buying one freehold title ( for the entire house ) ? You should visit Land Registry online website and enter the postcode for house and check if there just one freehold title or one freehold title plus two leasehold titles ? You can pay £3 by credit card for each title and download the property title.
    I would expect it is freehold + 2 long leases because I have seen the individual masionette apartments also listed for sale independently of the full house.

    Leave a comment:


  • ftb_lhr
    replied
    Thank you all. I just wanted to update this with 2 key relevant pieces I found on this topic:

    1. A blog article from a big name law firm with a very explicit example of a UK resident, first-time homebuyer:

    https://www.withersworldwide.com/en-...welling-relief

    2. A very thorough and detailed example of MDR experience from a first time buyer. Comically, no one is able to arrive at the Conveyancing Solicitor's numbers ( SDLT of £7,760 on total Purchase price = £342,000).

    https://forums.moneysavingexpert.com...st-time-buyers


    Leave a comment:


  • DoricPixie
    replied
    ftb_lhr,

    I would not rely on a mortgage broker to give tax advice. The HMRC SDLT manuals are readily available for you to access online yourself. A conveyancing solicitor may be able to help but it’s not unheard of for them to fluff up when it comes to things like MDR and the higher rate of SDLT so choose one that has experience of these more complex transactions.

    You could go down the MDR route but one of the properties will be an additional residential property and therefore attract the higher rate of SDLT.

    The guidance for the FTB SDLT Relief has a section on linked transactions.

    https://assets.publishing.service.go...dance_note.pdf

    As for your idea of buying a single property and splitting it yourself you won’t be able to do that with a residential mortgage. For something like that you’d be looking at development finance.

    Leave a comment:


  • Gordon999
    replied
    Are you buying one freehold title ( for the entire house ) ? You should visit Land Registry online website and enter the postcode for house and check if there just one freehold title or one freehold title plus two leasehold titles ? You can pay £3 by credit card for each title and download the property title.

    Leave a comment:


  • loanarranger
    replied
    My advice as a broker is to have a discussion with a quality Conveyancing Solicitor regarding all related legal matters given that this is not a strait forward transaction. Any form of qualified advice comes with a fee to pay but better you get it right at the beginning.

    Leave a comment:


  • ftb_lhr
    replied
    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?

    Leave a comment:


  • loanarranger
    replied
    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.

    Leave a comment:


  • ftb_lhr
    replied
    Originally posted by loanarranger View Post
    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.

    Leave a comment:


  • loanarranger
    replied
    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.

    Leave a comment:


  • ftb_lhr
    replied
    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.

    Leave a comment:


  • jpkeates
    replied
    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.

    Leave a comment:


  • ftb_lhr
    replied
    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?

    Leave a comment:


  • Gordon999
    replied
    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.

    Leave a comment:


  • loanarranger
    replied
    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

    Leave a comment:


  • Hooper
    replied
    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.

    Leave a comment:

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