I’ve had quite a few enquiries about flats recently, and we’ve just had an offer through for a great example of how to structure your mortgage so I thought this week I would run through all you need to know!
Firstly, what’s a multi unit freehold block (MUFB)
It’s a block of flats where it is all on one freehold, so it is kept all together as one with no flats on their own leasehold titles. We sometimes see blocks that have been broken up, so some flats have been sold off within the block and that can cause issues with your mortgage so it’s worth checking the Office Copies at Land Registry to see what the situation is before you proceed. Some lenders do not like split freeholds – ie. where some flats are on their own leasehold – whether you own them or not.
What do you need to think about before you put an offer in?
- As I’ve mentioned, the Office Copies are really important so always check this before you do anything else – it’s a quick and cheap starting point!
- What planning is in place if the property has been converted? There are so many historical conversions that don’t have the correct planning so this is something to check. You can look at the planning portal, or check with the planning department. Don’t assume that just because the council tax is separate that it’s been granted!
- Could the properties be split off and sold separately? Utilities need to be split, check the water tank and boiler too.
- Are each flat over 30m2 and do they have independent access?
What mortgages are available and what should you think about?
As always, there are a couple of considerations as well as the interest rate! There are some lenders who will offer a competitive rate for blocks of up to 12 flats and for purchases this may work well. We can look at it on a 2 or a 5 year fixed, so if you are looking to refinance at some point there there are shorter options.
These lower rate lenders will value the property at what’s called a block value though, and that may or may not work for you. What this means is that they valuer will look at the individual values of the flats, and then deduct about 10-15% depending on the demand for the sale of the full block. Recently we have seen a fairly consistent 10% being deducted from the value.
If you want the opportunity for an aggregate value, then we do have other options. This could be for your own development or a refinance of a property you already own. Rates will be higher, but as always it is about the bigger picture! For blocks of up to 10 flats, where the valuer confirms that the flats can be sold within a 12 month period, then we can use the aggregate value; this means the total value of the individual units. In real terms this usually means an minimum of 10% on top of the block value, so that’s the consideration on absorbing the rate difference.
There are other reasons that you would use a more specialist lender, so don’t get put off when things look a bit more complicated:
- Some flats are under 30m2
- Where some flats are on a leasehold title so it’s not a freehold block
- Where some flats have been sold off so you don’t own the whole block
- If it’s a block of more than 12 flats
As always, consider your yield when looking at these properties, the rate is only a deciding factor if the yield isn’t enough!
A recent example…
A client has built a block of 6 flats and is putting them on long leasehold titles. We have had a valuation carried out and are able to use the market value as the flats could be sold within 12 months. This is giving the client an additional 10% on top of the block value – in this instance it was increased the loan size by £123,000 so can make a big difference to the viability of the project. We were able to fund 75% LTV of the aggregate value.
Give us a call if you want to run through any examples.