Questions with an inherited property?

Hi Oscar

Graham is correct - you can get a multi-unit mortgage from a number of lenders such as Paragon or Precise.

If you want to apply leases (which you don't need to do) then you just put the freehold in the name of yourself and another party who would hold a 1% share.

The one professional you don't seem to have consulted is a mortgage broker - this should be your first port of call but please go to a specialist

Reply to the comment left by Crossed_Swords at 22/09/2022 - 08:22
Hi Graham, rebuilding my father's house is very emotional for me.
In 1972 he paid £12000 for a old victorian house, its now worth close to 1million.
He passed away last year, so I'm left with this old property, I will take on board your advice, and will speak to a few mortgage brokers.
After I convert the house into two flats the property will be worth more than 1.5 million,and should rent for more than 50k.
So I think you will agree, lots of potential in this project.

Thanks for your help.
Oscar.

Hi, normally there is no issue with you granting the leases direct to the buyers when they purchase the leases after you have developed them. Lenders can sometimes be funny in this type of situation but you would hope with a development loan this will not be the case.

If this is an issue then I have dealt with this situation before on a number of occasions and, from the information you have given, perhaps you could do the following:

1. grant leases to you and 'another' (mum/dad/wife etc);
2. at the same time as having the leases granted have your mum/dad/wife etc enter into a declaration of trust stating that they hold their interest in the lease on trust for you absolutely. This will mean that there is no CGT liability or potential IHT liability arising from the grant of the lease as you still own all of the beneficial interest;
3. immediately on completing the leases have your mum/dad/wife, as well as you, sign a transfer transferring the leases back to you.

These documents together with applications and fees can be sent to the land registry and they will send you back the registered leases. The fact that the leases and freehold are subsequently registered in the same names doesn't actually mean that they have merged unless that was your intention and you make an appication to merge them which you will not. If you are concerned about this though just ignore step 3 and have the mum/dad/wife sign all of the transfers when you sell the leases. Hope this helps. Best, Charles

Reply to the comment left by Crossed_Swords at 22/09/2022 - 08:22
Hi , my intention is not to live at this address, but only to keep the freehold and rent both flats.
My financial advisor says to remortgage both flats individually...but you need to put two leases on each flat.
When I'm a old man I plan to sell one of the flats & keep & one.
So is that right I don't need to make leases if I'm only renting ?

I'd have to disagree with your mortgage broker. There's no logic in having two separate mortgages and it's overly complicated by creating leases. You just don't need any leases - that's very messy.

If you ever want to sell the flats individually, then you can create appropriate leases at that point.

For a BTL loan (or development loan) on each flat you will need a lease (not two, I assume he means two in total) on each flat or a multi unit loan on the whole property. The latter restricts you from selling one flat without redeeming the mortgage. In that sense your advisor is correct.

Reply to the comment left by Puzzler at 26/09/2022 - 15:43
Hi puzzler,
My plan is to rent both of the flats, I have no intention of selling, I have been looking at a multi unit mortgage , I have no intention of living in the flats..
The opportunity to rent them for upwards of 50k a year is there so that's my plan..thanks for your help.

Reply to the comment left by Graham Bowcock at 26/09/2022 - 09:43
Thanks for your message Graham, yes I don't want to make things complicated, just want to rent the two flats, get a interest only btl mortgage, and hope to become a successful landlord.

Hi Oscar
my wife and i bought a detached, freehold property last september which had 2 self contained flats ie 2 separate front doors. we wanted to complete before the SDLT rates changed on oct 1st 2021, so completed deal in cash, with intentions to remortgage after 6 months.
i learnt about the mortgage issues after we owned it, ie will need a specialist lender.

we decided to buy the freehold in a new company, just in case we decided to create 2 leaseholds in the future as we understand you can't own both freehold and leasehold of same property.
after 6 months mid march 2022, i started the remortgage process, it was hard and slow but we got the 75% LTV cash in our bank account to repay family loans at the end of Aug 2022. so there were lenders out there who did lend on multi dwellings in 1 property. yes the interest rate 0.9% higher than another Buy 2 Let i arranged (at the same time) on another single property i bought in sole name.
i am aware there are courses to help one convert FREEHOLD TO LEASEHOLD, but i have not gone down this path as yet.
Good Luck

Hi, I don't know what kind of LTV you are looking at but I have a couple of contacts that deal with short term development funding. No idea how much it costs but I am happy to pass you their details if you want them.

In the meantime, like other comments I cannot see why the banks have to see two leasehold properties in order to grant mortgages (there is certainly no legal necessity) but over the last 15 years banks have gotten more and more rigid in what they expect to see and so I guess as soon as you mention 'converting into flats/apartments' they will think leasehold as opposed you simply owning the freehold and granting short term leases over the converted flats. If I wanted to give the mortgage companies some credit then I suppose their argument might be that, if they ever had to repossess the property, it would be easier to sell one/two separate leasehold flat(s) than the freehold in a building of two flats. I am not saying that I agree with that view but just trying to find a reason why the lenders are so stuck in their ways at times.

Best, Charles