Purchase of Freehold Property Previously Converted Into Two Units

• Client: UK national and director of a loss-making business
• Property: Freehold property valued at £760,000 that had previously been converted into two units
• Challenge: Required 85% LTV on a property with two kitchens and a flat roof, with plans to revert the property to a single family home
• Finance: £646,000 mortgage at 85% LTV on a 30-year term at a variable rate of 4.25%

Properties that have been converted or divided into multiple units can present additional challenges when arranging mortgage finance, particularly where the borrower intends to return the property to its original configuration. Enness was approached by a UK national looking to purchase a freehold property that had previously been converted into two separate living areas.

The property was valued at approximately £760,000 and featured two kitchens and an internal door separating the living areas. The client intended to revert the property to a single larger family home. The property also had a flat roof, which further reduced the number of lenders likely to consider the application.

The client was looking to borrow £646,000, representing 85% loan to value (LTV). This was a relatively high LTV given the property’s unusual configuration and the client’s financial circumstances.

The client was a director of a loss-making business. Although this did not necessarily prevent the application from proceeding, it created an additional consideration for lenders when assessing affordability. The combination of the client’s income position, the property structure and the high LTV meant that a conventional mortgage route was unlikely to provide the required flexibility.

There was also a tight timeframe. The client’s offer had already been accepted by the vendor, who was becoming increasingly concerned by the number of lenders that had declined to provide finance. A solution therefore needed to be identified quickly to avoid jeopardising the purchase.

Another important consideration was the potential change in value once the property had been returned to a single dwelling. The larger family home was expected to have a higher value than the property in its existing two-unit configuration. This created the potential for the initial acquisition finance to be refinanced once the works were complete.

Enness therefore approached lenders that were comfortable considering unusual property structures and higher-LTV applications. A private bank was identified that was prepared to look beyond the property’s existing configuration and assess the wider circumstances of the application.

The lender was able to provide the required £646,000 mortgage against the £760,000 property, representing 85% LTV. The facility was arranged over a 30-year term at a variable rate of 4.25% at the time.

The initial mortgage provided the client with the funding required to complete the purchase and move into the property with their family. The structure also provided a potential route to refinancing once the property had been returned to a single dwelling and any resulting uplift in value could be assessed.

The case demonstrates how high-LTV mortgage finance can sometimes be arranged where a property has an unusual configuration and the borrower’s circumstances fall outside standard lender criteria. Property structure, planned works, income and the proposed exit strategy can all influence a lender’s assessment.

For clients purchasing unusual residential property or looking to finance substantial alterations, specialist private bank mortgage expertise can help identify lenders able to consider more complex applications, subject to individual circumstances and lender criteria.

Disclaimer:
This case study is for illustrative purposes only and does not constitute financial, legal, tax or investment advice. Finance is subject to status, underwriting, affordability, valuation, property suitability and lender criteria. Terms, rates, LTVs, fees and availability may vary depending on individual circumstances.

Risk Warning:
Your property may be repossessed if you do not keep up repayments on your mortgage or other borrowing secured against it. Property values can fall as well as rise. Where borrowing is used to fund property improvements, the final value of the property may differ from expectations and additional costs may arise during the works. Variable-rate borrowing may also result in repayments increasing if the applicable interest rate rises.