Case Study: MUFB gets a 10% uplift in value using aggregate value

Periodically, we come across cases that we believe other property investors would be interested to learn about. The summary below is one such case, highlighting the client’s unique requirements and how we provided a solution they were happy with. We hope you find this recent case study helpful.

The Property

My clients were looking to refinance a multi-unit block of 5 flats that they had recently finished converting from a former commercial unit which comprised of 2 shops. The property is now arranged as 5 x two bedroom flats, all fully self-contained.

Client Background

My clients are seasoned property investors with a large background rental portfolio. They have a lot of experience with commercial to residential conversions having successfully completed numerous other projects.

Client’s Requirements

My clients were looking to refinance the property onto a long term mortgage in order to raise funds against the uplifted value. The funds raised from the refinance will be used to repay private investor funds that assisted with the initial purchase and conversion works.

Solution

When assessing the refinancing options for this particular property, there were two key points we had to consider.

1. The property is located down a street where there are nearby commercial units
2. The clients had used third party private investor finance to assist with the purchase and conversion works

Initially, the clients were unsure whether to create individual leasehold titles and refinance each unit individually or keep the property as a freehold block of flats. Typically, when refinancing a freehold block of flats, the majority of lenders will request commentary on the block value. This can see up to a 10-15% discount being applied to the value which then reduces the loan amount clients can borrow, as this is the figure they will lend against.

The issue when creating individual leasehold titles is that lenders have ‘exposure limits’. This means some lenders would have only been able to lend on 2 out of the 5 flats, like in this example.

Example of Capital Raising Using the Aggregate Value

• Given the property location and surrounding commercial units, we pre-referred the property to numerous lenders for a suitability referral. The lenders who had come back and said they could lend were going to reduce their LTV due to the surrounding commercial units.
• We have access to a lender who can lend on the ‘aggregate value’. This is the value of each individual unit as if it was on its own leasehold title but without the need to legally split the titles. Given the key points above, this was a great solution for the clients.
• This lender would not reduce the LTV due to the surrounding commercial units and the clients would not have to incur additional legal fees to create individual leasehold titles.
• The outcome of the valuation provided an aggregate value of £1,035,000. The valuer did also comment on the ‘block value’ which came in at £945,000. This means the clients have benefited from a 9.50% uplift in the valuation, without having to legally split the titles.
• Another benefit for the clients is that due to the property being recently converted, all units had an EPC rating of ‘B’. This meant they were eligible for a 0.45% reduction in the arrangement fee in addition to their existing customer discount which is another great saving!

Client Feedback

How can Advocate Finance help?

If you have a freehold block of flats you are looking to capital raise against, please get in touch to see how using the aggregate value could be of benefit to you!

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