Splitting and refinancing?

by Readers Question

8 months ago

Splitting and refinancing?

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Splitting and refinancing?

We own a free hold block of 11 flats in Birmingham area.

When we bought the property it was derelict. Since then we have done the work and now all 11 flats are tenanted and generating rentals with limited vacancy for past 2 years.

During this time we had a commercial mortgage from Aldermore which was secured against the freehold. They only did 65% lending.

We are coming up to renewal time and at this stage we would like to split the title to create 11 leasehold flats and move the freehold into a SPV.

All of the above is doable and we have done this in past in London when we converted a large house into 3 x 2 bed flats.

With this property in question, each flat will be valued individually between £100K-£125K and we would like to raise 75% financing on BTL mortgage (not on commercial mortgage mortgage terms).

I wonder if someone has done this kind of work in the past and if they could point us in the right direction.

After talking to different mortgage brokers they either say it is not doable or they say it is very difficult. Which is telling me that it is definately doable if we are talking to right solicitors and financing team.

Any help would be much appreciated.

Kashif



Comments

Neil Patterson

8 months ago

Hi Kashif,
I often think splitting one freehold block into separate leases is a good idea in terms of giving you future options.

Can I ask exactly what criteria you are finding the lenders will not help with? At the moment I don't know why you are being told no and it could be one of many reasons.

Neil Patterson

8 months ago

You will however, need to be prepared to use more than one BTL lender as they will have a maximum exposure limit per block.

GabS

7 months ago

Hi Kashif, we’ve done something similar so my comments below are based on our specific experience. Your first port of call should be Aldermore. To apply for your BTL mortgages you will need to have your new leasehold titles sorted and for that to happen, your existing lender will need to consent to a change in their security and stipulate on what conditions. Our original lender insisted that their security was amended to all the newly created leaseholds plus the freehold interest, jointly. They also insisted that the repayment of their mortgage had to be in one go, which of course is tricky, as by definition you’re going from one large mortgage to a number of smaller ones. But that’s something that can be sorted with a bridging loan if need be (or I suppose synchronising completion dates). Hopefully your current lender will be cooperative.
Good luck!
Gabriela

Kate Mellor

7 months ago

I second the above comments. I’ve done this myself, but it was due to our business lender wanting to get out of property lending so they were more flexible with us than Aldermore is likely to be we you.

You will need more than one new BTL lender as mentioned by Neil & it will be tricky to co-ordinate completion dates.

Your new lenders are highly likely to demand the leases are registered with HM Land Registry BEFORE completion rather than letting your solicitor submit all the paperwork simultaneously.

You will probably also need to put the freehold into another name such as a company.

First off establish how Aldermore will expect you to proceed. Aldermore will need to maintain their security at all times, so will probably charge you to change the security (they may well instruct their own solicitor at your expense to deal with it for them ).

If you have capital you could use towards the transaction you could suggest they release the security on say 3 or 4 flats which you intend to remortgage with a single lender on payment to the lender of 100% of the market valuation figure of those properties to be released and then release the other titles piecemeal at 75% of value decreasing with each title release or something similar (this is what we did with Yorkshire Bank). This would allow you to complete on different dates.

You’ll need to instruct a solicitor to draw up the leases and have some Land Registry compliant plans drawn up. This all takes time, so needs to be all done before you apply for your remortgages.

Your mortgage broker only needs to arrange your mortgages based on the fact that the properties will be leasehold on completion & doesn’t need to become involved with anything else.

Having said all that, I suggest you ask your broker what Paragon Mortgages can do for you because they are now doing single remortgages on the freehold of blocks of flats. We later did two blocks with them without having to split titles which was sooo much easier and they were both at 75% LTV.


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