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hi,

i have a single dwelling house that i converted into 2 separate flats for cashflow around 8 years ago without planning or building regs,
i would like to know if it is possible to apply for retrospective planning and separate into 2 leases as i have been told this is possible if i have had them over a certain amount of years with no complaints or issues etc, and if it is possible how would i go about it

Hello and thanks for your query. You don't say why you are seeking to regularise the arrangement now: are you looking to sell up? You can indeed apply for retrospective planning permission: it is called a Certificate of Lawful Use. This says that although you (or a previous owner) didn't originally seek planning permission, the deed is now done. Make sure you have lots of evidence about when the conversion was done, to support your claim about 8 years ago. If you can show a longish time period, most planning departments will grant a Certificate, though they can be difficult if the flats are in a conservation area or in a town or city centre where parking is a problem.

Councils hungry for money may also seek S106 or Community Infrastructure Levy "contributions" from you, as you have created a new dwelling unit and this is generally taxed nowadays, sometimes quite heavily. For example in one of my operational areas the CIL is £365/m2, so a 60m2 extra flat may cost £21,900.

I suggest you have an initial chat with a planning consultant to discuss the specifics of your situation. The council may not apply retrospective CIL, or could be persuaded not to by a consultant.

However, your problems do not end with securing a Certificate of Lawful Use from Planning. You may find yourself being challenged by Building Control, who will want you to bring the apartments up to contemporary fire and noise standards, and with separate heating, water, gas and electrical systems. The fire and noise protection in particular could prove very expensive, as you will be retro-fitting fire- and sound-proofing materials into an existing building fabric, and it can prove pretty tricky to do this and pass the required tests. For example, there will be noise transmission down the existing solid walls of the house, and depending on how the building was constructed, this may require you to introduce a soundproofing barrier layer into the original brickwork. This is why you see relatively few conversions of old houses into flats nowadays: it is simply too expensive outside London and the South-East, where the cost can be justified by the extra value you can realise by having multiple units instead of one.

I don't want to put you off doing this, because so much depends on the attitude taken by individual councils. However if you are looking to sell the building as two units with valid planning permission and make a profit, the demands of Building Control may mean that it will be more cost-effective to avoid the expense, return the building to its original layout, and sell it as a single dwelling. The old days when a builder could hack around a large house and split it into several flats for a quick buck are over.

Hi Tony, hoping you might be able to advise me.

I currently have a residential joint mortgage with a friend on a 2 bed flat in London, we have planning permission to convert the property into 2 separate dwellings, one 2 bed flat (with the aid if an extension) and one 1 bed flat, planning and building regs all approved.

However we're not sure what the best approach to move forward with the project. Ideally we would like to do the full conversion and create 2 separate titles and let out both flats and go and buy a new property each on our own.

The problem is that our lender will obviously not allow us to create 2 separate titles with our existing residential mortgage so the one choice is to get a bridging loan to pay off the entire mortgage, do the works, split the titles and then re-mortgage on both properties somehow although I don't think a single lender will give us 2 buy-to-let mortgages in the same building, however the cost of a bridging loan for say a 12 month period would cost at least £60k-£70k just in interest payments and arrangement fees which ideally we want to avoid.

Another option we are thinking of is to do the extension works and the majority of the renovation under our current residential mortgage (although I appreciate this is slightly risky should the lender find out) without officially creating 2 flats, then maybe getting a bridging for just the time it takes to create 2 new titles and arrange 2 buy-to-let mortgages.

Can you advise on a couple of possible routes we might be able to go down to avoid having to get a bridging loan and having to pay off the entire mortgage before being able to split the titles.

Also just to mention that our credit rating isn't good at the moment due to historic arrears from the recession etc...

Many thanks in advance!!!
Mike

Reply to the comment left by "Mike Adams" at "23/08/2015 - 17:09":

Hello Mike, This is really a finance question rather than a planning and development one, and there are experienced mortgage brokers active on this site who can give a better answer than me. I suggest you re-post your question as a general query. I don't know where you got your figures from, but £60-70K extra, on top of your normal mortgage costs, seems very high. I don't know what you're paying at the moment but you can get development loans from a number of banks at between 5% and 8% above base; there's no need to go for development finance at credit card rates of interest, provided the numbers stack up and this looks like a profitable development. However, if you have a poor credit rating, all bets may be off: you can only tell by asking lenders via a broker.

Have you had building regulations drawings made up, and the cost of conversion properly costed out? You will need this as part of any application for a development loan, to show you have at least an 18-20% margin. The works will not be cheap, as there are lots of rules now about ensuring each converted flat is protected against noise, smoke and fire damage from neighbouring properties. Given your lack of experience, I suspect lenders will also want you to show that you have an experienced builder committed to the project.

I see no reason why a lender wouldn't offer two BTL mortgages in the same building, provided the new flats are signed off by Planning and Building Control and have valid leasehold titles. Lenders offer BTL mortgages on multiple units in blocks of flats, so why not here?

As regards sticking with your existing mortgage, this may be the best approach. Check the conditions of your mortgage, to see if the lender requires you to tell it about any extension works, but you may be able to complete the extension without telling them (lots of owner-occupiers do this). If queried, you may wish to claim you are planning simply to increase the flat from a 2- to a 3-bedroom unit, not do the conversion shown in the planning application. You would then do the other conversion works at the same time, get your building control certificates, arrange all the paperwork to create two new leasehold flats (and have them validated but not completed by the Land Registry), and seek two new BTL loans. Assuming you are successful with the loan applications - and you should canvass views and seek an agreement in principle beforehand - you would then schedule everything to happen on the same day: your solicitor would issue the validated leasehold papers to the Land Registry, the new lender would issue their loan, and you would pay off your old mortgage.

All this depends on you having enough cash to do the conversion, and a good builder on board, and that your credit ratings are adequate. If your personal finance position looks rocky, you may need to bite the bullet and sell the site as a whole to a builder or developer. Or you could look to negotiate a revenue-sharing arrangement, i.e. find a builder with a good credit rating and access to capital, who will do the conversion work in exchange for a share of the profits as well as payment for the building works and a suitable profit margin. Most builders will want to keep things simple, buy the whole site and keep the redevelopment profits for themselves (you would get the planning-related share of the profits), but you may find a younger person who doesn't have the capital to do the whole job (buying the site as well as funding the works), so he or she might be prepared to co-develop with you.

Reply to the comment left by "Tony Atkins" at "24/08/2015 - 10:48":

Hi Tony, many thanks for your thorough response, yes I appreciate much of my query is finance related but I've found it very difficult to find advice regarding how to re-mortgage from one dwelling to a buy-to-let on 2 properties simultaneously.

Everyone I have asked has said the only really option is to pay off the entire mortgage first to be able to split the title, hence the high cost of a bridging loan/Development finance, the best offer I could get was £7k arrangement fee and 1.5% monthly interest charge, our mortgage is £300K, so over 12 months in total we are looking at over £60K.

The development figures definitely stack up as our mortgage is £300K, building costs no more than £80K (includes complete renovation internally) and once finished the value of flats should be just under £900K, the value of the flat as it is at least £500K and just to mention the works are relatively simple as the flat naturally divides itself in to 2 units.

We can just about afford to pay for most of the renovation works however so the loan required was primarily to pay off the mortgage to split the tittles etc...

Regarding the buy-to-let in the same building, I was told by several brokers that lenders have issues with multiple buy-to-let mortgages in the same building to the same person, however as you say this is probably a hurdle that shouldn't be too difficult resolve.

You are the first person that has stated that it could be possible to split the title and re-mortgage simultaneously, the pre-validation with Land Registry sounds like the key to this process and would solve most the issues, even when I've spoken o solicitors they haven't really mentioned this has an option, looks my best bet of confirm this is a viable route.

I really appreciate your help with this, any other ideas come to mind please let us know.

Many thanks,
Mike

Reply to the comment left by "Mike Adams" at "24/08/2015 - 11:53":

Mike, I have recently been quoted 5.5% and 8% p.a. by Barclays and Aldermore for new-build, with LTV rates of around 50% of the site value and 60% of the build costs. Assuming they were prepared to do this also for flat conversions, your Gross Development Value of £900K suggests you could clear your current mortgage, even if they only loaned you 33% for the site with its planning permission. You would then pay 8% on £300K for a year, and 8% on any additional borrowing you took out towards the construction costs, if you needed this.

From the lender's point of view this looks a no-brainer: they lend you £300K as a development loan on a flat worth £500K, so provided you the building is structurally sound and you use an experienced builder, how can they lose?

My experience of pre-validating leasehold flats comes from building a block of four flats with a development loan from Lloyds. When I came to sell the first flat, the buyer wanted to obtain a mortgage. My solicitor drew up the freehold and leasehold papers, had them checked by the Land Registry, then sent them to the mortgage company's solicitors, who said they were fine. On the day of completion my solicitor sent the papers to the Land Registry (copying this to the mortgage co's solicitors), the funds came over from my buyer, Lloyds were repaid most of their loan, and the remaining loan was assigned to the three remaining flats which also now had title.

Make sure you use a solicitor who has experience of setting up freeholds and leaseholds. It's fairly straightforward but you need to sort out issues like the amount of ground rent, who manages and maintains the property (I think it best if the leaseholders are responsible for this, via a management company that they co-own, as leaseholders can be treated very badly by third party management companies), what the parking arrangement are, if any, and so on. Even if you sell the flats, it can be useful to keep the freehold, as the ground rent will amount to a nice income for you and your family over the coming 125 years, for very little outlay. I get around £1000 a year index-linked still on my flats, which would cost a significant capital sum if I tried to buy the equivalent income as a pension in the future.

I have a question about CO2 detectors. My local council is asking for them to be installed in all rented properties. None of these flats/houses have fires of any kind, so CO2 is virtually impossible. Surely wired in Smoke detectors do the necessary ?

Chris - this isn't a development query, so please post to the general board.

I think you mean CO (carbon monoxide) detectors, not CO2. CO can come from faulty gas hobs or any other gas appliance, not just fires. And of course tenants could bring in their own calor gas fires and gas themselves, so a CO detector would seem a good idea to protect tenants from themselves.

Hi Tony

What is the easiest way to flip properties as a property developer within the 6 months ruling that the majority of CML lenders follow?

I have two friends who are cash rich, time poor, who would like to invest with me to flip more properties but are concerned about the time frame to wait before we can sell each property, thus limiting the total number of properties we can flip every year.

I'm assuming that the Ltd company is the best route for myself and my 2 investor friends. We are prepared to play the long game on this and put in 80K each.

We would like to buy, renovate and flip then reinvest in the next property and rinse repeat.

I am speaking to a tax accountant on Monday for further advice on this but wanted to see if you have any advice you could share?