Lending for property which we would like to convert into two flats

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    Lending for property which we would like to convert into two flats

    If anybody could point us in the right direction, we'd be very grateful. We've found other posts about converting a property into flats, but I'm still confused

    I've read in a couple of places that since October 2010 the conversion of a single dwelling into two separate units has been deemed a 'permitted development' for between 3 and 6 people, and therefore does not require a change of use application under the planning act. However I've been unable to find the source of that information, and would be grateful if somebody could advise me if it's accurate, as I've also read some conflicting information.

    Secondly, if we were to go ahead with our plan to convert one house into two flats, would we be likely to need specific permission from the lender, even if we were able to finance the conversion ourselves? If so, is there any lender who might be more willing to grant this permission than another, so we can take that into account before we make the purchase?

    Finally, if in the future we decided to sell one of the flats and keep the other, what would be the issues with titles/mortgages etc?

    All info gratefully received! Thank you.

    #2
    Can I deal with the last two points as they fall within my scope of advice.

    There are lenders who will consider advancing monies for the acquisition but basing the end loan on the increased value once the conversion has taken place and has its relevant permissions, alternatively there are bridging facilities for any period from one month to say 18months with the loan including costs being recouped by a remortgage.

    Much depends on your level of expertise for lenders to accept a multi unit property as this falls within the complex criteria for Multi Lets/ HMO's, but such types are funded by very good competitive rates on over terms up yo 25 years in either individual names or via a Limited Co format.

    Initially there is no need to create separate leases as it is extremely difficult to get lenders to agree to provide funding on both units or indeed to get two separate lenders to agree to lend on an individual unit basis, this unfortunately is a quirk of main stream lenders criteria so it is easier to secure a loan against the freehold property.

    Should you decide to sell one unit then a new lease can be created in the purchasers name leaving you with the Freehold and a leasehold interest in the remains property. Clearly the lender will require the outstanding loan to be reduced to whatever is the maximum LtV of the remaining flat , if there is a shortfall then part of the sale proceeds will need to be used to cover the shortfall.

    Overall this is a standard process for multi unit properties.

    I will leave other forum members to comment on the first part of your posting.

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      #3
      If anybody could throw light on my first query I'd be very grateful - we're new to the hmo/multiple units thing and would therefore prefer to keep things as simple as possible for our first project. Therefore, we're really interested in finding out of the information we found is accurate, about conversion into two units being a permitted development where the total number of people are between 3 and 6.

      Loanarranger, thanks for your help . I'm guessing this is where we might fall down with regards to finding a lender. It's not so much the amount of lending that makes the difference - we would be quite happy to get a 75% loan on the current value and to fund the conversion ourselves. If we just bought a property through an ordinary high street lender, at ordinary rates, would the 'usual' conditions prevent us from converting without specific permission? I know that things will onbviously vary from lender to lender in practice, but at this point, a general overview of the market would be useful.

      Thank you!

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        #4
        Any structural changes to a property must always be presented to a lender for their approval, this applies for both residential owner occupation as well as investment property.

        It is important to note that not every lender will accept a freehold property which has been converted into self contained units, whilst it is straight forward to secure funding on a vanilla style property, the moment you seek consent to undertake the conversion may result in permission being denied and suggesting you find an alternative lender. I appreciate that many people take the chance that the lender will not find out but take it from a former lender this is not a risk you should remotely contemplate if you have designs on building a small to medium sized portfolio.
        Consult a broker who understands the BtL sector including the complex niche governing Multi Lets and HMO's as this will help you understand which path to go down.To this end my standard recommendation is to avoid the mortgage consultants who work out of estate agents offices, they may be excellent in dealing with homeowner mortgages and to a lesser extent vanilla style BtL's but often lack the experience in the sector you are considering entering.

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          #5
          Loanarranger, your help is greatly appreciated! Thank you .

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            #6
            You should visit the Planning Dept at your Local Council and ask if planning consent is required for subdividing an existing building.

            Also you should make a google search for "development mortgages".

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              #7
              Gordon googling Development Mortgages will not help, more likely to confuse; you will read Bridging Finance, Short Term Finance and indeed development finance. With certain lenders ey will base any loan against a 90 day valuation , others on an Open Market Value, is it an open or closed bridge. Whilst your suggestion was sound in theory I personally would suggest that if the applicants own bank is unable to assist he should consult a broker who has experience in such matters, as I mentioned in an earlier note in this question, there are indeed lenders who might have an inbuilt solution to both parts of the proposition.

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                #8
                Yes, you are right - Loanarranger - Development mortgage may not be required for simple conversion of a house into two flats .

                The conversion work basically comprises installing a "bathroom set on the ground floor" and "kitchen units with sink unit in a room" on the first floor plus partitioning of staircase to form separate entrances for the flats.

                If the conversion work can be returned to previous state, its not really a new development ???

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