One building, five flats

THE QUESTION

If I buy a property with five flats and then split the titles and try to get 5 BTLs mortgages for the flats: would there be an issue with mortgage providers not being willing to provide mortgages in the same building?

THE ANSWER

Simple answer - yes. This issue confuses a lot of investors.

1. You cannot be both freeholder and leaseholder, so the freeholder must be a separate entity to the leaseholder/s. Often this means using/creating a Ltd Co to own the freehold
2. BTL lenders have over exposure rules. This means they restrict lending in any given block to 20/25% of the total number of flats. In this case, five flats means you will need to find five different lenders
3. BTL lenders don’t like the same entity owning all the leases in a building.  So having all five leases in the name of the same leaseholder will cause problems.  You may not need five different people on each of these leases, but you will need a minimum of two each owning two or three leases.  If these people are obviously connected (i.e. husband and wife) you may still find some lenders declining to lend.

Commercial lenders happily give one mortgage against the whole building on a single title.  So no need to go through the title-splitting exercise.

The purpose of doing such a title split is usually to uplift the value of each individual flat, but how much are you increasing the overall value by doing so, compared to leaving it on a single title?  A commercial valuer will be able to give you both values to give clarity on that. Balance that with all the legal costs involved in setting up five leases - and perhaps a Ltd Co too, if you don’t already have one.

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