THE QUESTION

I am looking at a property block of flats that records show hasn't had any sort of planning for a conversion.  However, the land registry shows that one of the flats is on a lease. There are three dwellings in the block shown on the planning map. Does that mean that the property may have been converted without consent?

If they have no planning consent then can I offer to buy out the freehold and create leases on the properties?

THE ANSWER

For decades landlords have decided, almost on a whim sometimes, that they can get more income out of a house converted into flats than a single house.  Some apply for the required planning permission to do the conversion; some don’t bother and just do it anyway because it seems like a good idea to them.

If you have checked with the local planning office and they tell you no permission has ever been granted, then it will have been an illegal conversion.

This makes it unmortgageable as no lender will lend where the...

THE QUESTION

With an inherited BTL I’m about to purchase another property.  This is a two-bedroom maisonette with 53 years remaining – but with only 53 years on the lease.  I know this needs to be extended to make the property viable for a BTL and have researched the process – so I know what to do and how to do it, but how difficult is it in reality?

THE ANSWER

It is not hard to extend a lease; you just enter negotiations with the freeholder and agree a price.  The cost is progressively greater the fewer years left on the lease.

Negotiations to extend a lease can begin when the remaining term drops below 80 years. You would be very well advised not to negotiate on your own behalf, but engage a solicitor or other suitably qualified person highly conversant with leasehold law to negotiate on your behalf. Choose a solicitor that specialises in leasehold law.

Clearly you cannot agree a price to pay for this flat until you have clarity on how much it will...

THE QUESTION

We are converting a 4-bed house into 2 x 1 bed flats and 2 x 2 bed flats. We were going to sell, however we are now thinking about forming a company, keeping and renting them through this. Which lenders lend on a development which has just started please? Should we put one property into a company or four separate units?

We bought it in joint names personally with a mortgage. We have done the footings and part of the build.

THE ANSWER

If you want to keep a property converted into four flats that will be a commercial mortgage and it will be possible to keep the property on a single title post conversion.

One point to clarify; presumably you have obtained planning permission to convert into four flats, or you bought the property with existing planning permission? No mortgage lender will touch an illegal conversion with a bargepole and it is the first thing any lender’s surveyor checks with the local planning office when valuing converted flats.

Commercial mortgage...

THE QUESTION

If I have unencumbered property, i.e. no mortgages, what creative finance schemes/packages are available for short or longer term for development projects? I really want to avoid BTL finance.

THE ANSWER

If you really want to avoid BTL finance and are fortunate enough to have an unencumbered property, you are in a very powerful position.

You can offer that property as additional security/extra collateral for any development project you want to get into.  That could mean that you need to put no actual hard cash into your project; save for survey and legal costs.

Both bridging and development finance lenders would typically lend you 70% (with slight variations) of the value of your property; as well as lending against the property you want to buy.  This is usually sufficient to borrow 100% of the purchase price plus the refurb/conversion/build costs if you need to.

For properties that fall into refurb/minor conversion category, that would generally be bridging....

THE QUESTION

I want to purchase a property for a potential serviced apartment; it also works at 8.5% yield as a Buy-to-Let.

I had a JV partner who was going to put in the deposit with the mortgage in my name.  My mortgage broker has informed me that no lender will accept a deposit unless it is from a family member.  I have not heard this before, is there any way round this?

THE ANSWER

This has been standard lender practice for some time.  BTL lenders prohibit you from borrowing the deposit, their criteria states that deposit must come from your own savings.  You cannot even borrow from family, it must be a gift and the gifting family member must not have any interest in the property.

They insist that you use only your own cash for deposits and they will drill down by requesting bank statements until they are satisfied it is your own money or decline to lend when they discover it is not.

There are several reasons for this stance.  Lenders consider it...

THE QUESTION

I know there are limited lenders if you buy a property, refurb it and then sell it within six months, but if I pay cash for a property and want to spend about £10k max on the refurb to turn it into 4-room lets for professionals before getting some money back out and renting the property out, is this feasible?

THE ANSWER

Buying for cash if you can is positive because you have:

1. Zero borrowing costs
2. The ability to complete very quickly (which will ensure you can negotiate the price down to the best you can get the property for).

Having four tenants on separate AST's will reduce your choice of BTL lenders as some only allow a single AST let.

The majority of BTL lenders will not accept a remortgage application until you have owned the property for six months, regardless of your method of purchase. There are a couple that will lend limit lending primarily to purchase price and provable refurb spend, thus trapping perhaps more money in the property than you intend.

...

THE QUESTION

Is bridging finance calculated on a deal-to-deal basis, rather than an individual’s mortgageability?  What would I have to demonstrate to be successful in getting a bridging loan?

THE ANSWER

Bridging has a completely different underwriting process to mortgages.  Mortgages are income-based lending for the medium to long term; whilst bridging is asset based lending for the short term.

The actual terms are determined on a deal-to-deal basis, as is the bridgers decision to lend or not to lend on a specific property, regardless of the fact that they are happy to lend to you as a person.

Invariably, bridgers will deduct the monthly interest at the drawdown of the loan (Retained Interest), so making monthly payments is rarely a consideration.

If you can demonstrate more than one exit route that will play well with bridgers.

Getting the term right is important as you want to be in a position to repay your bridging loan early, or at least on time. I assist all my...

THE QUESTION

A good friend of mine has just exchanged on two properties at auction yesterday. The properties are leasehold apartments with a long term lease on them for 15 years from 2007.

He’s looking for a good mortgage broker who could provide a mortgage on the two properties that can be turned around within the auction timescales of 28 days? He can pass any credit hurdles and has financial backing, but would like to finance the majority with a mortgage.

THE ANSWER

My brokerage can obtain bridging finance from one of our lenders to enable your friend to meet the 28 day deadline. You’ll find that traditional BTL mortgages can’t fulfil the 28 day term.

To complete this purchase within the required 28 days, he will have only two ways to realistically hit that timescale, cash or bridging finance. However, he may decide that completing on the sale will only compound the problem he has created for himself.

Assuming I have correctly understood that your friend has...

THE QUESTION

One of my landlords, whose property I manage for him, has voiced an idea that he wants to sell his 5-bed property – and suggested I might like to buy it.

It cash flows well and we have another 10 doors down.  The demand is strong so it’s a no brainer really; I just need to concentrate on financing.

My question is has anyone already gone through this scenario, and how did you do it?  My thinking especially now is to purchase it as a limited company.

THE ANSWER

To address how to finance this, let’s examine what will and won’t work.

Mainstream BTL lenders, will not lend on a property with 5 unrelated tenants each on a separate AST; most only lend on a single AST, a few will go up to 4 but 5 is outside of their criteria. They also don’t lend to limited companies.

This means that your only option is to use specialist or commercial lenders who, coincidentally, are happy to lend to limited companies.

Expect to borrow 75% with relative...

THE QUESTION

I have been sourcing properties now for nearly 12 months and now I am looking to buy my first property to flip or rent, but I would like to clarify the processes I need to go through.

I am looking to buy a 3-bed terrace and split it in to two 1-bed apartments.  Can I split the title through permitted development?  What costs are there in this?

I want to use a money in/money out strategy via bridging – what is your advice?

THE ANSWER

First things first, this is not a Permitted Development deal; to convert a house to flats requires Planning Permission.  Many landlords have just gone ahead and carried out a conversion without planning approval, unaware that they have just made their property unmortgageable; no lender will give a mortgage on an illegal conversion. (This is one of the goldmine categories of unmortgageable properties that I teach investors to make outrageous offers on at my workshops, as it is cash buyer territory only.)

So the first step...