Multi unit blocks of flats
An experienced existing property owner contacted us when they were looking for finance to buy a multi unit property, in South East London.
- The property was to be bought at auction.
- It was a multi unit property (2 self contained units on one freehold title)
- The property was not in a liveable/ lettable condition and needed refurbishing.
As this was an auction property, we only had 28 days in which to close the deal. Otherwise the client would lose the 10% deposit they had paid on the day of the auction. We found a lender who not only acted quickly enough for an auction purchase, but would also happily provide multi unit mortgages as well as a refurbishment loan.
What we arranged was a short term refurbishment loan at 70% LTV at a rate of 0.73% per month. Allowing the customer 12 months to carry out the works on the property. The lender gave an approval in 24 hours and at the same time, went to valuation and instructed the solicitors.
Auction financing is a specialised area which many banks wouldn’t consider. Auction financing needs to be arranged swiftly. Once the hammer goes down at auction, the customer has to leave a 10% deposit and then has only 28 days to raise the rest of the finance. Providing multi unit mortgages is also an area the High St banks don’t like dealing with, as they are more complex than a normal residential mortgage. But through our panel of expert lenders, we were able to utilise the services of a lender who was perfect in this instance.
Short term refurbishment loans are another area we can assist with. Shawbrook Bank are just one of the lenders on our panel who consider lending on properties which need refurbishment loans.
Advocate Finance Ltd can arrange a mortgage for an auction property and multi unit mortgages as we have a preferred panel of lenders for Auction financing. Chosen because we know their work is ethical. They are upfront and have no hidden extras.
Our first choice of lenders have:
- No exit fees.
- Daily interest rates.
- Minimum term of only 1 month (in some cases only 1 day).
- Terms of up to 18 months
- Competitive interest rates starting at 0.65% (No increase in interest rate throughout the term, this is not just an introductory rate).
- Very strong funding lines.
If you would like to discuss financing for auction property or multi unit mortgages, contact us. We are experts in arranging mortgages for an auction property or multi unit blocks of flats.
Most of the standard BTL lenders will not provide a mortgage on a multi-unit property. But, a growing number of specialist lenders or commercial lenders are filling this void and providing multi unit mortgages. Advocate Finance have 8 lenders that provide multi unit mortgages on freehold flats or multi-unit properties.
In theory it is also possible to grant long leaseholds to each of the flats and then obtain multi unit mortgages with the main stream buy to let lenders. However a lot of investors and other brokers talk about it but do not understand the issues that need to be overcome. Which is why a specialist lender is required for a multi unit mortgage.
The following points relate to when an investor wants to grant the lease to themselves in order to obtain a mortgage. If the freeholder wants to sell the flat to a unconnected third party by granting a leasehold interest, then this shouldn’t be an issue. However, this is outside the scope of this article.
Issues with granting long leaseholds
1) Costs – Your solicitor will charge for creating the leases. On some properties that have had 9 units, this has been as high as £9,000 to £10,000. So in one of our cases this was a factor in keeping the property as a freehold multi-unit property.
2) Tax – Is creating the leasehold interest going to cause you to pay stamp duty on the lease, or capital gains tax? It varies depending on your circumstances. You need to seek advice from your accountant and solicitor.
3) The freeholder and leaseholder legally cannot be the same entity – You cannot grant yourself a lease. Typically for flats the freehold is held in a service company that is a limited company. The leaseholds are granted to the individuals who are the mortgage applicants. One possible solution is to hold the freehold in your individual name and then grant the lease to you and your spouse. You and your spouse create a legal partnership which is a different legal entity to you as an individual. As such you can grant a leasehold interest.
Some lenders will expect a management company to hold the freehold and do not like the set up where individuals hold both the freehold and leasehold interest. This is the case for the largest BTL lender on the market, so beware.
4) Initial occupancy rules – The creation of a new leasehold can from a lenders perspective, put this in the same segment as new build properties or initial occupancy properties. This can then limit the loan to value to 65%. If you want to obtain a higher loan to value then you would need to wait 6 months. Then they will consider higher loan to values.
5) Exposure / Concentration – Most of the main BTL lenders have rules on the number of properties they provide a mortgage for in a block of flats. This can be 25%. So for a block of 4 flats they will only provide a mortgage on 1 of the flats. You might end up having to obtain several mortgages for one property which means more valuation and legal expenses.
6) Saleability – When the lenders valuer inspects the property to value it, they will expect each flat to have individual utility meters. And for the the property to be fully self contained with no shared facilities.
In addition, they would assess if the flats individually would be saleable in their own right. If not then you would not be able to get a mortgage on the individual flats.
7) Arms length transaction – If the leasehold is created and then sold for its market value and funds are transferred between vendor and buyer for the market value. This is then referred to as an arms length transaction and generally mortgage lenders have no issues with this. Some lenders do have issues when instead of an arms length transaction, the leasehold interest is “gifted” and although perfectly legal, some lender have issues with it and will not approve it. I had one customer who was advised to “gift” the leasehold interest as this was easier from a legal perspective, and then got the mortgage approved by another broker. When the mortgage offer was produced and the lender found out it was a “gifted” interest they would not provide the mortgage. This was a top 5 lender.
You can understand from the seven points above that although legally feasible to create leasehold interest from a freehold flats and multi-unit properties, there are in practice a number of practical points that need to be considered if you want to obtain mortgages on the leasehold interest.
From our experience when you factor into all the above points which involve uncertainty, complexity and cost, most investors decided to obtain a multi-unit mortgage or freehold flat mortgage, rather than trying to resolve each of the 6 points above.
If you would like further information regarding long leaseholds from multi unit flats or multi unit mortgages, Contact us.
Multi unit mortgages are now available to landlords. This is great news at a time when the demand for rental property is growing. New tenancy numbers have been at record levels for the last year but the private rental sector (PRS) may be finally running out of space to cater for tenant demand.
The Association of Residential Letting Agents (ARLA)’s 6,000 members state that the proportion of tenants to properties has reached the highest level since records began.
Three quarters of respondents believe the demand is outstripping supply. The increase is particularly acute in London and the South East and suggests that there is an insufficient supply of property to meet tenant demand.
The survey has shown that tenants are staying in their properties for longer, wary of trying to find a new property in such a competitive market. It is now at a record 19 months.
We have an expert panel of lenders who are able to arrange mortgages and finance for rental properties. Multi unit mortgages are also available. As well as Buy to let mortgages and bedsit mortgages. HMO mortgages can be arranged also.
Please visit our dedicated pages on the above areas to find out more about how we could help you arrange the perfect finance solution for your circumstances.
If you would like to discuss multi unit mortgages in more detail. Contact us.