Converting two flats into one property

5th July 2021
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Chris Lloyd

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Converting two flats into one property
Chris Lloyd
VICE PRESIDENT

Chris Lloyd

I have recently seen a large increase in the number of clients looking to purchase a flat located above or below a flat they already own in a building, then merging the two into one large flat. 

They do this by typically adding a staircase and then general cosmetic work. Most high street banks won’t, however, lend on this because when the re-mortgage/purchase is complete, they would still be essentially lending against two separate flats.  

We are, however, still able to avoid expensive development finance rates (often 2% lender fee and at least 1% interest pcm) as there isn’t any heavy ‘structural work’ to be carried out. A small handful of Private Banks and Building Societies are happy to cross collateralise across both flats and allow the client to combine the flats into one property, once the mortgage has drawn down.

In some cases where the client has a relatively low mortgage on their current flat, we have been able to raise enough lending secured against this property to cover not only the deposit on the second flat, but the cost of the works as weell. This means they don’t need to use any of their own cash.

The Building Societies are typically the best place to assist with this type of transaction when the lending is below £1m and the Private Banks when the lending is above £1m.

I have given both examples below on two recent transactions: 

Building Society

Nature: Residential re-mortgage & purchase 

Total property value: £950,000 (both flats combined) 

Total loan amount: Max LTV 75%

Product: 2 year discounted variable

Interest rate: 1.99%

Early repayment charge: 3% for 2 years. None thereafter              

Mortgage term: Up to age 70

Repayment method: Part & part repayment; 50% of the property value interest only and 25% capital & Interest  

Overpayments: 10% of the outstanding balance each year can be overpaid without penalty. 

Lender application fee: None

Lender arrangement fee: £499

Private Bank 

Nature: Residential purchase & re-mortgage

Property value: £3,000,000

Loan amount: Max 65% LTV

Product & Interest rates:

2 year fixed 

  • Interest rate: 2.19% plus BOE base rate (currently 0.1%) 
  • Monthly payment: £4,062
  • Early repayment charge: 0.5% for 2 years. None thereafter 

2 year fixed 

  • Interest rate: 2.39% 
  • Monthly payment: £4,239
  • Early repayment charge: 2% in year 1 & 1% in year 2. None thereafter 

3 year fixed

  • Interest rate: 2.59%
  • Monthly payment: £4,594
  • Early repayment charge: 3% in year 1, stepping down to 1% in year 3. None thereafter

4 year fixed

  • Interest rate: 2.69%
  • Monthly payment: £4,771
  • Early repayment charge: 4% in year 1, stepping down to 1% in year 4. None thereafter

5 year fixed

  • Interest rate: 2.79%
  • Monthly payment: £4,949
  • Early repayment charge: 5% in year 1, stepping down to 1% in year 5. None thereafter

Mortgage term: Max 25 years

Repayment method: Interest only

Overpayments: A capital reduction of 10% per annum can be made without incurring an early repayment charge. This will apply throughout the early repayment charge period.                                         

Lender Arrangement Fee: 1% of the loan amount 

Purchasing a property - especially one that requires a large mortgage loan - can be stressful. Negotiation, understanding terms, dealing with paperwork and the different parties involved in the process is challenging. For this reason, our role extends beyond getting you the most advantageous mortgage rate and terms. Enness is here to support you throughout all aspects of the property purchasing process; nothing is too much to ask, and no task is too small.

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