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I have a block of four flats on a single long lease (900 years) and a single BTL mortgage. This mortgage is soon to revert to lenders SVR.
At the time I tthought one mortgage would be cheaper than four lots of fees so I didn't split the title of the flats. I have since learnt that single title leasehold flats are more valuable and it can be worth while spliting the title.
However they were financed in 2008 with a 85% LTV loan, changed at MEs BTL SVR.
If I split them now I will have to pay the legal costs of raising four new leases, four lots of mortgage fees and borrow 75% LTV with todays more expensive BTL money. The value will probably have reduced in the last three years.
So is the uplift when splitting leasehold flats really that great to make it worth my while?
Why ask us? Yes, honest question.
Add the numbers up. The math will tell you if it makes sense at this time.
As a business strategy it might make sense to have multiple loans. Mostly because you can sell one off later if there is a need.
You also have to take the long view. Just because you have not split up the property now does not mean the value is not there. You coudl pull the trigger later when there is a need to do so. If you have no reason to sell, paying the costs now and dealing with the loan marketplace might be a step too far. You could just wait until there is a pressing need.
If you want to have a large portfolio you will eventually need to switch to more commercial financing. Having a freehold with multiple streams of income vs. multiple flats will matter less to a commercial lender. They will look more at the income and the expenses. They will be less concerned than the normal BTL lenders about a freehold for multiple units.
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Tend to agree with John. The sums will tell you if its worth doing or not. More often than not, it is.
I've got a couple of properties like that with multiple units, and was recently looking at the possibility of selling off parts, and even now with the market soft, it still makes sense to split them up.
Tis a numbers game
I suggest you pay around £150 and get one of the flats valued by someone who you are likely to take BTL finance out with .You may struggle to get all 4 flats financed by one Lender .Some Lenders are also picky about newly-created leases and deem them to be newly created entities and therefore new -builds ,something I cannot quite come to terms with .What this means is you may only get 65% lending ! If your numbers are wrong ,at least you have only spent £150
Once you have established the end-values of the flats and your anticipated LTV with a BTL lender the numbers should speak for themselves , it should be a straightforward legal transaction .You will need architects plans to indicate the newly -created leaseholds but not a huge cost considering that you may be in a position to release cash.
The bit I'm not sure about is splitting leases from an existing leasehold ,your solicitor should be able to advise .
As previously mentioned - its all about the numbers .Do your homework on the surrounding area and look at the values in a way a surveyor might (ie location ,sold prices comparables, floor sizes ,grade of finish ,rental yield and tenant demand etc).
Lisa Orme or one of the other mortgage brokers on here should put you right.
I hope this helps.
You perhaps need to look at the head lease to see if it allows you to create sub leases (that won't cost you anything to check that), because if it doesn't you would need the freeholder's consent first.
If you can it is purely a numbers exercise comparing the legal costs and any lender costs from ME against any potential increase in value.
Kevin is spot on that from a mortgage point of view; you won’t be able to fund these either with one lender or across several buy to let lenders if you create individual leases as the lenders will be over exposed.
This is all about your exit strategy.
If you plan to sell them individually to residential occupiers then you’ll need to split them into individual leases; these leases will need to be in place and on Land Reg for 6 months before anyone will lend on them.
However if you intend to keep them DO NOT split the leases.
Any lenders that would lend on these such as Paragon will only lend if they are retained on one freehold as they won’t class this as over exposure as it’s on one title.
You will be looking at semi-commercial lending however and won’t get the rates and terms available via buy to let lending I’m afraid.
Lisa All comments are for education and information purposes only and do not construe as advice or a financial promotion. No liability is accepted for comments made. If you wish to receive information in an advisory capacity then please contact me about becoming a client. www.keys-mortgages.com