Converting a property into flats to maximise profits on sale is not always straightforward from a tax perspective. You would almost always do this when converting a house unless you intend to remain the freeholder and rent the flats out instead of selling some (or all) as leasehold properties. Like with development finance, bridging loans are short term solutions so you have to remortgage onto a new product or sell the flats as soon as the work’s completed. If you are carrying out a straightforward conversion, such as converting a house into two flats by simply adding a single wall, you may qualify for a specialist buy-to-let mortgage. This is if you plan to divide the flats into separate leasehold properties. Think Plutus® is a registered trademark. In addition to contacting the local authority and Building Control, it is important to consult a solicitor to check if there might be any legal barriers that could obstruct your renovation plans. I am looking to keep all the flats as buy to let and not planning to sell. A lender will let you borrow up to 65% of the property value with development finance. In this arrangement, a lender will allow you to borrow up to 65% of the property’s value. Registered in England No. In most cases, the incumbent lender won’t consent. If turning the house into flats means you’ll have to carry out extensive work on the property, you may need development finance. Splitting a house into flats can be a great way to turn a profit, but not all houses are the right fit. Many landlords are waking up to the fact that buying and converting property in to two or more self contained units has a number of advantages. I have recently started thinking about buying a house to convert into flats solely for resale purposes. The impact on a property’s value when you convert a house into flats depends primarily on your plans. Bridging loans are quick solutions you can use to pay off the current mortgage on the property. They are best suited to less expensive projects that don’t require a development loan. There are high interest rates and fees associated with development finance. They come with high interest rates as they’re very short-term – up to 12 months. This would provide funds from the rented flat to pay of remortgage and my rent to support my mother as a pension. It is extremely important to get quality advice from a tax adviser or chartered accountant to get a clear picture of what your tax liability will be. However, the big disadvantage is that the amount you owe increases a little more each time the interest is added. All leases will need to adhere to the Council of Mortgage Lenders instructions for … X. Once complete, the flats are sold for £250,000 each. Likewise, another council might reject your plans to convert two flats into one, if there is a limited housing stock in the area. My Partner and I jointly own two neighboring flats; we have resided in one for 9 years and purchased the neighboring flat 3 years ago, renting it out ever since. Privacy Policy / Cookie Policy Lenders do not appear to understand these arrangements even though in a lot of ways a refinance combined with a new lease is no different to buying a residential flat ‘off plan’ from a large developer. Personally leave the house as is , and just share a suitable house with your father. One main benefit of roll-up interest is that you don’t have to worry about paying off any interest until the work is completed and you remortgage or sell the property. Converting a house into apartments can yield a comparatively higher income in the short term from individual rents plus a greater capital return in the longer term once the property is sold, either as a whole or individually. The interest can be paid off monthly or you can choose a roll-up interest option. You wouldn’t necessarily have to assign leases to the individual flats if you didn’t want to. Find loads of useful information to support you on your property-buying journey. You could either arrange separate buy-to-let mortgages on the remaining leasehold flats you wish to let out or sell them and have other people buy the leaseholds. It can involve installing central heating, walls, and bathrooms. We do not charge a fee for our advice, instead we charge for arranging your mortgage. If you are selling the flats once the work is finished, you may not need to remortgage to pay off your loan – just be sure to discuss your exit strategy with the development or bridging lender upfront. You repay the whole debt in one go at the end of the period. The solicitor dealing with your transactions will need to be informed of your plans to convert. It may also save you the inconvenience of having to create separate leases, and is likely to be a cheaper finance option than development finance or a bridging loan. Introduction – The purchase of buildings for conversion in to self contained flats is becoming more popular. If you will be taking out a mortgage to buy the house, your lender will need to be involved in the plans as well. Some banks readily accommodate landlords by offering loans to help with refurbishment and/or development, while others discourage or disallow mortgage holders from turning houses into flats. When you first took out your current mortgage, the lender would have granted it on the basis of your property being a single dwelling, therefore they must be notified of any proposed changes to their security. If you choose the wrong location, you could easily end up losing money. As things stand, you could take advantage of private residence exemption by living in one of the flats rather than renting/selling all of them, but this could change. Every case is unique when it comes to converting a house into flats but, generally speaking, tax authorities will factor in the money you spend on purchasing the property and making the conversion. A buy-to-let remortgage would likely be cheaper than development finance or a bridging loan. Things like the size of the property, the new design, the condition of the house and the number of flats you’re converting to will all play a part. As with development finance, a bridging loan is a short-term solution and you will have to remortgage or sell once the work is complete. Locations with higher demand command a higher rent. If you plan on securing leasehold mortgages on each individual flat, regardless of whether or not you live in one, the dwellings will usually carry a higher total value than the single freehold property would. YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY DEBT SECURED ON IT. Off the top of my head - yes the utility changes were awful, took up far too much of my time and cost a fortune too. Alternatively, you may be able to continue owning the freehold of the entire property in your name by taking out a single specialist buy-to-let remortgage. Another factor that may play a part is the availability of parking. They’re suitable if you have the money to carry out the conversion, but your current lender won’t allow it. You don’t receive any money to fund the work itself. Converting a care home into residential flats or HMO: find the finance you need. Our typical fee is £495 depending on your circumstances. This would save you the hassle of having to remortgage once the work is complete. When you divide a single freehold property, like a house, into multiple leasehold flats, you don’t split the freehold. How can I go about converting it? If four-bedroom properties are struggling to find buyers, but single bed flats are moving fast, conversion may be the perfect option. Some lenders will only allow you to borrow on titles that have separate leaseholds. Lenders are unlikely to grant a residential mortgage on this type of property because there is a risk that you might rent out part of the building, which would be in breach of the … The property: A four-bedroom, Victorian mid-terrace house; The location: Battersea, south-west London; What they spent: The couple bought the original property as two flats for £950,000 in 2011, and have spent around £250,000 on renovation work and on converting them into a single house. All Time Today Last Week Last Month. Work with your estate agent to find a good candidate for the transformation – they can help you identify the neighbourhoods with the most potential. That said, with development finance being a short-term arrangement, there shouldn’t be a long period for that interest to build up. Having said that, listed building permission wasn't a barrel of laughs either. You’ll need your solicitor to sort out the ownership of the freehold when you divide the property into separate leasehold flats - as the freehold and leaseholds cannot be held in the same name - along with a maintenance agreement, etc. So the plan would be to convert the house into 3 self contained flats. Looking to turn a property into multiple units, but not sure where to begin? You may not need to remortgage if you intend on selling the flats after the work is finished, as long as you discuss your exit strategy with the development/bridging loan lender before you take out the loan. The freehold title remains unaffected, it’s just that you create a series of long term leases on the property. They’re a good option if you’re converting a property you own and already have the money to fund the conversion work. The reason is that any prospective buyer of the freehold may want to take out a separate lease on each flat to give them flexibility for selling later on. This could potentially give your lender the right to repossess the property. Time. It differs from a flat or house share because each flat in a multi-unit block is self-contained and no areas are shared between tenants. This is because a potential buyer of the freehold will likely want a separate lease on each flat, as it would give them some flexibility if they were to sell any in the future. With no plans to live in any of the flats, you would take out a buy-to-let mortgage on each one, enabling you to retain ownership of the flats and rent them out. Posts; Latest Activity . Registered in England No. Most lenders will be happy for you to sell the flats one-by-one, as long as you pay back part of your debt with each sale and stay within the agreed limits. What are my options, as I would need to borrow further money to do the work? You have also checked with the local authority to ensure your plans comply with the relevant regulations and an estate agent has helped you ascertain whether the property in question is a good candidate for a flat conversion. Answers provided in response to Ask the experts are based on the information provided and do not constitute advice under the Financial Services & Markets Act. This simple question is something many landlords neglect to ask when investing in a house to convert to flats. There’s a high demand for flats in London, and splitting a property into units can maximise both rental income in the short-term, and profit on sale in the long-term. Legally splitting up a property If your plan is to retain the freehold and rent out all the new flats, rather than selling them as leasehold, there will probably be an increase in the value of the freehold, but perhaps not as high as the total value of multiple leaseholds. If you are planning a conversion project and need advice on getting started, contact Think Plutus today. Target Markets. Roll-up interest is also available for bridging loans, meaning you repay the loan plus interest in full when you remortgage or sell the new flats. A bridging loan is a fast option that can be used to pay off an existing mortgage on a property. How converting your house into flats affects the value of the property depends on what you plan to do with it. The cost of converting a house into flats depends on the property. In most cases, you will need a specialist mortgage to convert a house into two or more flats. Before you even begin the process of turning a house into flats, you need to ensure there will be a market for your new rental properties. You can use this to pay off your current mortgage. In the eyes of the law a house converted into flats remains a house and so converting back should not require further planning approval. 01-April-2019 0:00. Question: I am thinking of turning my six-bedroom house into three separate two-bedroom flats, but the property is still mortgaged. The only time it wouldn’t be necessary would be if you planned on remaining the freeholder of the entire property and letting out each flat rather than selling some as leasehold properties. You may have a helpful bank but this is not what we hear about the market. The freehold and leases cannot be held in the same name, You can, however, own the freehold indirectly via a limited company and own the lease on your flat personally. As a rough guide, expect to pay ~£25,000 for a basic conversion, including putting up new walls, installing bathrooms and adding the necessary central heating systems. If you are planning to convert a house you already own, chances are the mortgage was granted on the basis that the property would be a single dwelling. The end result will vary depending on the circumstances. If you plan on taking out leasehold mortgages on each of the flats – regardless of whether you live in one or not – the properties will usually be worth more collectively than one big freehold property. It’s likely you’ll ultimately need to remortgage onto a new product - or products -  if you want to convert a house into 2 or more flats. Here’s our guide to converting a house into flats. The nature of the loan/loans you will need depends on the extent of the work to be carried out. When budgeting for the project, there are many things to consider. Some lenders will allow you to borrow up to 75% of a property’s current value, while some will consider lending on up to 75% of its potential value if you agree to sell within 90 or 180 days. Hello, we're just heading into the last stages who am I kidding of converting two flats into one house. Taking the time to research the local housing market is a fundamental step to maximise your rental profits. At this point, you’ve done your research to confirm that there is demand for flats in the neighbourhood in question. They’re designed to be a short-term solution, usually between 12 and 24 months, and you repay the debt in full once you reach the end of the period. It takes a little time to conduct this research but there is no better way to ensure the flats you create are actually going to be something people want in your chosen location. Registered office: Hurstwood Grange, Hurstwood Lane, Haywards Heath, West Sussex RH17 7QX. There’s a high demand for flats in London, and splitting a property into units can maximise both rental income in … Our solicitors and mortgage advisors receive numerous enquiries in relation to converting property into flats together with land registry title split, more of which you can read about in our previous blog ‘The title split of your property and creating new leases‘. Take your first steps towards homeownership. With ever changing legislation and local authorities drafting their own revisions It is always a good idea to discuss your proposals with the local authority to ensure compliance. It’s important to instruct your solicitor to arrange a title deeds and leases for each  flat as soon as the work’s completed if you plan on dividing up the flats into separate leasehold properties. Think Plutus® is a trading name of The Finance Planning Group Limited. Turn your property into a worthwhile investment. You will need to get an understanding of how your trading profit will be taxed and whether you will be liable for capital gains tax. You’ll typically receive a decision on your planning application within 8 weeks. However, you can indirectly own the freehold through a limited company, and own the lease on your flat directly. I have had sole use and possession of a flat/bedsit adjoining mine for the last 12 years. More and more people are embracing the idea of turning a house into flats. The FCA does not regulate some investment mortgage contracts. If the work you want to carry out is straightforward - e.g. When purchasing a house that is going to be converted into flats, you cannot simply use a residential mortgage or similar loan. Converting houses into flats is becoming increasingly popular. Find out below what you can do next. I have enough equity to cover this conversion. They’ll then lend you money to fund the work you want to carry out, usually 100% of what the work will cost - providing it doesn’t exceed 75% of the GDV (gross development value). One benefit of the roll-up option is that you don’t have to be concerned with interest payments whilst you are carrying out work, only paying it when you remortgage or sell the property. Copyright © 2020 Think Plutus, Mortgage Broker London Converting a House Into Flats: All You Need to Know When it comes to property refurbishment , one of the best ways to add value to a property is to turn it from one home into many. The work takes six months. One main drawback of roll-up interest is that the amount you owe – and will have to pay back – increases by a bit more each time the interest is added. Your estate agent can assist in determining where changes can be made, including where new boilers and heating systems need to be installed. You will need a residential mortgage for the leasehold you plan on living in. You can apply for planning permission online. You’ve made the decision to convert the home in which you live, in other words, your primary residence, to a rental house. This money is usually released in instalments, with the prerequisite of regular valuations on the property. All Discussions only Photos only Videos only Links only Polls only Events only. Be sure to have your solicitor sort out ownership of the freehold when you create the separate leasehold flats. You need to gain your lender’s consent before commencing any work to convert a house into flats. 01-April-2019. You can also opt for roll-up interest when you take out a bridging loan, which means you repay the whole loan including interest in one go when you remortgage or sell the flats. John Charcol is a trading name of John Charcol Limited and its Appointed Representatives. Calls may be recorded for training and monitoring. Converting a house into … You’d need to remortgage again once the work was complete, unless you intended on selling the flats straight away. Once you have found the right area and the right house, you’ll need to get in touch with the local authority’s planning department. It’s important to note that you’ll need to have the property split legally with separate leases for each flat, otherwise you won’t be able to get multiple mortgages. However, it’s worth remembering that development finance is short-term, so the interest doesn’t have a particularly long period over which to roll-up. You will not be permitted to live in one of the flats. Get Started. We are in process of converting a 3 bed semidetached house into 3 one bed flats. A residential mortgage is arranged on the new property alongside the buy-to-let mortgage on your current property. Do your homework and make enquiries into the current market. You could then continue to own all flats and rent them out. It may be possible to retain the freehold for the entire property by obtaining a specialist buy-to-let mortgage. You would almost always split a house into leasehold flats when converting a property. It will also depend on whether or not you already have the funds to carry out the conversion and what your intentions are for the property once work is complete. You will need to think about how converting a house into flats impacts your tax liability – make sure you check this thoroughly. You will need to contact the utilities companies to ensure each address has its own meters for gas, electricity and water. Converting a House in to Flats. The fees include things like product fees, valuation fees and solicitors’ fees. The FCA does not regulate most buy to let mortgages. You will need to instruct your solicitor to arrange leases and title deeds for every flat upon completion of the work. 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