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Splitting house into resi and BTL...


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Hi all

 

I'm just about to complete my first new development (in June) - five flats converted from a single house. What a learning curve this has been! I’m going to write-up the ‘story' as a new post soon. A tale of planning nightmares, mortgage hell and runaway builders :) but now I’m almost there. As they say, when you’re going through hell, don’t stop. 

 
Anyway, my current priority… I’m living on the development site and now need to move out. I have found a good size house that would allow me to live-in part of it PLUS separate out the top floor as a BTL. 
 
I can buy the house on a residential mortgage initially - but need to get some cash out soon afterwards for further development projects. So my intention would be to:
 
1. Buy with residential mortgage (@45% LTV) - limited by the amount I can borrow 
2. Within first three months, undertake some minor works to make the top floor a separate dwelling (it would be quite easy to provide separate external access)
3. Obtain planning permission, to legally split the property, creating a separate lease for top-floor 
4. Take out a BTL on the top floor flat
 
Of course, the key is getting the resi-mortgage company’s permission to do this… I may be being widely optimistic but I can think I can see the way through this. 
 
They would need to re-value the ‘remaining' part of the house. I anticipate it would lose about 22% of its purchased value, so the LTV would move to c.56% - not straying into  problem territory, especially if I buy with an e.g. maximum 60% LTV mortgage. 
 
Are there any pitfalls that you can see? Reasons why a mainstream lender might not permit the change to their mortgage? If I buy with a tracker / no ERC, perhaps I could just re-mortgage if they won’t allow it.
 
Any thoughts or watch-outs would be much appreciated. 
 
Thanks for your input!
Jeremty
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It's impossible to predict a lenders attitude to consent to let because you can only get a response after completion of the residential mortgage, and a brokers authority ceases on completion, i never get involved and so can provide any useful anecdotal advice. I don't hear about CTL being denied though.

 

One thing to be really careful of is that lenders generally do not like BTL's that are adjacent or part of the same property you reside in, even where the titles are different and access is seperate. I don't fully know the reasoning behind this, but i know i struggle to place these kind of cases.

043_logo_final_03.png.0cdf828351f81e6097208048ac2d018d.pngStuart Phillips

Independent, Whole of Market Mortgage Broker

AALTO Mortgages Ltd

Web  www.aaltomortgages.com

Email  sales@aaltomortgages.com

Call  020 7183 1101

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I have read this with interest, how will you get on with the section 106 required? 

 

The current sotuation we are in is we are unable to get planning permission signed off until we get the section 106 signed by our mortgage company & we don’t want to alert our mortgage company to the fact we have already converted the property as we are in breach of our mortgage conditions! (Standard BTL mortgage) 

 

Our situation may be different to yours due to the planning being in retrospect.

 

i welcome your thoughts though! Currently we are looking at having to go down the bridging finance route which is expensive. 

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