How do I finance the purchase of a house which is 2 flats?
Discussion
My wife and I have found our next renovation project (not to flip but this time live in!) - it's being marketed as a 5 bed semi-detached house but needs a substantial amount spending on it to modernise it and bring it back to life.
The challenge we have is it's currently configured as 2 self-contained flats. It was clearly originally 1 dwelling and lends itself more as a house than as flats. Most of the neighbouring properties are houses and it's in a conservation area near all the best schools, etc.
The challenge is that we are technically purchasing the freehold and 2 leasehold titles. What we are trying to get our heads around is that we are actually therefore looking at buying 2 flats rather than 1 dwelling house. We are aware that we'd need planning to turn it back into a single dwelling (which will no doubt take time) so how do we go about purchasing it assuming that planning won't have been granted until after completion?
A few things to consider:
- We aren't currently landlords
- There are technically 2 kitchens but the one in the ground floor flat is barely usable and could be classed as a utility room
- The estate agent has valued and marketed it as a house and we don't know what each flat would therefore be valued out but he thought the ground floor would rent out at £900 and the top one £1,100 (with minimal work being done on them)
- The was an over-zealous builder next door who went into the cellar and caused movement in the party wall but this was rectified and underpinned 5 years ago (on the insurance)
- The max equity we can put down is 25%
There are a number of challenges to overcome but the price is good and with the right work would be worth significantly more.
Any help, advice would be greatly received!
The challenge we have is it's currently configured as 2 self-contained flats. It was clearly originally 1 dwelling and lends itself more as a house than as flats. Most of the neighbouring properties are houses and it's in a conservation area near all the best schools, etc.
The challenge is that we are technically purchasing the freehold and 2 leasehold titles. What we are trying to get our heads around is that we are actually therefore looking at buying 2 flats rather than 1 dwelling house. We are aware that we'd need planning to turn it back into a single dwelling (which will no doubt take time) so how do we go about purchasing it assuming that planning won't have been granted until after completion?
A few things to consider:
- We aren't currently landlords
- There are technically 2 kitchens but the one in the ground floor flat is barely usable and could be classed as a utility room
- The estate agent has valued and marketed it as a house and we don't know what each flat would therefore be valued out but he thought the ground floor would rent out at £900 and the top one £1,100 (with minimal work being done on them)
- The was an over-zealous builder next door who went into the cellar and caused movement in the party wall but this was rectified and underpinned 5 years ago (on the insurance)
- The max equity we can put down is 25%
There are a number of challenges to overcome but the price is good and with the right work would be worth significantly more.
Any help, advice would be greatly received!
andrewjamesroberts said:
how do we go about purchasing it assuming that planning won't have been granted until after completion?
If this is the key question:- Speak to a good local planning consultant who can tell you the likelihood of being able to convert it back to a single dwelling and what you'd need to do to do so. There are lots of intricacies of planning at a local level so you need someone who knows your local planning policy. To find a good one, go to your local planning portal and trawl through the applications and you'll start to see the same names pop up again and again next to successful applications.
- Speak to a good solicitor who will be able to advise on the legal aspects. Do not pick a cheap one - they will without exception be s
t and end up costing you more money in the long run. I know a selection who I've had good experiences with if you don't have one. - It's not clear in your post if you're considering renting out one flat whilst you live in the other and get planning on the whole site, or whether you plan to live elsewhere whilst the planning process is followed and renovation works are done? Getting short term tenants in what a pretty grim couple of flats sounds like a headache to me.
- You can put in a "pre-application" with the local council which should give you prospective answer on whether you can go ahead with the conversion into a single dwelling or not, and you could make your offer contingent on that pre-application being approved before exchange. I doubt the owner or agent would be too happy with that, though.
Edited by 22s on Wednesday 20th January 21:02
Thanks for the advice above.
We are currently trawling through local applications and there are loads of cases where planning has been approved for a 2 to one conversion in adjacent streets in the same conservation area
Is it the planning that’s the blocker or is it the mortgage aspect of having to do enough work to prove to a lender that it’s one property I.e single kitchen / stair etc
We would not be renting anything out. The house is a mess and needs gutting although it has working kitchen and bathrooms.
We are currently trawling through local applications and there are loads of cases where planning has been approved for a 2 to one conversion in adjacent streets in the same conservation area
Is it the planning that’s the blocker or is it the mortgage aspect of having to do enough work to prove to a lender that it’s one property I.e single kitchen / stair etc
We would not be renting anything out. The house is a mess and needs gutting although it has working kitchen and bathrooms.
No problem.
Having written all that, it now looks like your actual question is about financing the purchase. The simplest way would be probably a bridge - this is expensive, but will enable you to make the purchase, before refi onto a standard resi mortgage once the conversion is done.
Without seeing the technical details, if you are purchasing two leasehold flats and then the freehold, it is essentially three different transactions and, depending on the value of the flats, you could end up paying more SDLT than just purchasing the single dwelling and sadly I don't think any high street mortgage lender is going to lend for you to purchase it as a single dwelling in its current state.
You need to speak to two individuals on this one:
- A good broker (preferably one with experience of bridging)
- A good solicitor (one familiar with leaseholds)
Having written all that, it now looks like your actual question is about financing the purchase. The simplest way would be probably a bridge - this is expensive, but will enable you to make the purchase, before refi onto a standard resi mortgage once the conversion is done.
Without seeing the technical details, if you are purchasing two leasehold flats and then the freehold, it is essentially three different transactions and, depending on the value of the flats, you could end up paying more SDLT than just purchasing the single dwelling and sadly I don't think any high street mortgage lender is going to lend for you to purchase it as a single dwelling in its current state.
You need to speak to two individuals on this one:
- A good broker (preferably one with experience of bridging)
- A good solicitor (one familiar with leaseholds)
So, there’s a lot of ‘ifs’ here, but, if you could get planning permission to convert back into a single dwelling before completion AND get the seller to create a single staircase & kitchen... then could the lawyer not create a single freehold title deed upon completion?
Therefore allowing you to satisfy the requirements for a residential mortgage? A long shot I know but just trying to understand the art of the possible...
There would also be a renovation thread to go with it!
Not sure if you saw my prior one North Yorkshire Edwardian Renovation but this would be even better than that!
Therefore allowing you to satisfy the requirements for a residential mortgage? A long shot I know but just trying to understand the art of the possible...
There would also be a renovation thread to go with it!
Not sure if you saw my prior one North Yorkshire Edwardian Renovation but this would be even better than that!
I haven’t come across that exact scenario but in theory yes that could happen... Depends how patient your seller is.
I imagine the biggest delay will likely be with the Land Registry in this scenario, but your solicitor will be able to better advise.
I haven’t seen your previous thread but will take a look!
I imagine the biggest delay will likely be with the Land Registry in this scenario, but your solicitor will be able to better advise.
I haven’t seen your previous thread but will take a look!
Are you sure you need planning? I did this and no planning needed - however it was on one set of deeds (two flats and one house all joined). We had to get planning for a change of use as it was holidays lets, but there was no issue with the change of configuration as all the works were internal.
22s said:
You won't be able to "prove" to a lender it's a single dwelling when there are two separate titles for each flat unfortunately.
this. do you know for certain there are 2 titles? also will you be borrowing against the property to perform the renovations?i bought a house in a conservation area that was subdivided but bought on a single title. the lender released part of the funds to enable me to complete the purchase, then the remaining amount agreed once i had created a single entrance, removed the upstairs kitchen and put the gas and electric supplies onto the same meter. the house had been empty for a long time and was dilapidated, i'm not sure if the subdivision was ever wholly legit.
Sarnie said:
Another reason for the titles to be merged at the outset......
Exactly - I just read the thread and the whole thing shouts "why?" from the first couple of sentences. I'd want the landlord (freeholder) to deal with extinguishing the two leases and then sell me an unencumbered freehold with vacant possession.
If it's a situation where the two leaseholders together also jointly own the freehold then, if the above won't fly, you need the parties' solicitors to merge the three titles instantly upon sale/purchase so that your lender is still lending against an unencumbered freehold with vacant possession.
rockin said:
Sarnie said:
Another reason for the titles to be merged at the outset......
Exactly - I just read the thread and the whole thing shouts "why?" from the first couple of sentences. I'd want the landlord (freeholder) to deal with extinguishing the two leases and then sell me an unencumbered freehold with vacant possession.
If it's a situation where the two leaseholders together also jointly own the freehold then, if the above won't fly, you need the parties' solicitors to merge the three titles instantly upon sale/purchase so that your lender is still lending against an unencumbered freehold with vacant possession.
The challenge is that we would need the property to be valued as a single dwelling rather than 2 flats, which means completion would need to be subject to planning approval to convert back and we (or the vendors) would need to ensure it had a single kitchen, services, staircase, prior to valuation etc.
The why - it was valued accordingly. When it was originally marketed it had over 90 viewings and 16 bids on it but it was marketed as a single 5 bed semi... if we have to get bridging finance it will cost a fortune in arrangement & exit fees! Surely there must be a lender out there willing to lend on a ‘subject to’ or ‘conditional’ basis though if the vendor refuses to do the work or allow us to do it prior to completion?
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