Dear Delia

Dear Delia I have a client who is looking to purchase a large Victorian house that has been converted into five self-contained flats. He confirms that planning permission is in place and building regulations have been certified. However, there is no separate legal title for each unit. While my client could obtain separate leaseholds, he is reluctant to incur the costs of doing so. Are there any lenders that would help?

Delia says: Your client has a choice of options, as Katie Tucker of John Charcol and Tony Capon of Salt point out. Have you got a problem for Delia? Email mortgage.strategy@centaur.co.uk


Intermediary response
Katie Tucker is product specialist at John CharcolYes, some lenders would consider this case but because it is higher risk your cli-ent could have to pay higher rates or fees.

Usually lenders don’t like having more than one or two properties in a single block because, in terms of title, they would be left with multiple properties to repossess and sell on if borrowers defaulted.

Most lenders also have strict regulations about multiple properties in one postcode, leasehold or not, because if the area experiences a downturn there is an increased chance of them falling vacant and borrowers getting into difficulties.

In some cases, physical damage to a building following a natural disaster may render multiple properties unsuitable for letting over an extended period, although this is insurable and rare.

There are benefits to establishing separate leaseholds for the property in question, not only to access a wider choice of mortgages but also for your client’s convenience later on as he could sell the units separately.

However, in the case of purchases it’s a time-consuming and costly affair and often prices are agreed on the terms of the quick sales resulting from single freehold purchases.

The Mortgage Works would consider lending in this case. It would view it as a semi-commercial deal in terms of the valuation, which means your client would pay £1,500 for the survey as opposed to about £590, assuming he is buying the property for around £500,000.

TMW lends up to £750,000 at 85% LTV. Its three-year fixed rate product is 5.73%, but it adds a premium of 0.5% to its normal fees for such cases, so its standard 1.5% fee at 85% LTV would increase to 2%. It will even go up to 90% LTV, but the arrangement fee would then be 3%.

Salt has a less demanding arrangement fee of £495 for its 5.95% three-year fix. Alternatively, as the rental cover is based on the pay rate, your client may prefer its 5.68% two-year fix with a 1.5% arrangement fee. Salt will lend up to £500,000 at 85% LTV.

Woolwich would also consider this case. I like the look of its tracker at 0.69% above the base rate for the deal’s term. Although the pay rate looks higher at 6.19%, it is compensated for by an arrangement fee of only £295 and is excellent value if your client only needs to borrow up to 75% LTV as it has no tie-ins.

This product would be ideal if he plans to separate the titles and sell off any of the units in the next few years.


Lender response
Tony Capon is head of sales at Salt We have considerable experience of the buy-to-let market as it is part of the Derbyshire Group, which has operated as a specialist provider since 2000.

However, many lenders have traditionally shied away from this kind of deal because they could find themselves in a difficult position if borrowers default on their mortgages.

In your client’s case, each unit won’t have separate leasehold titles. So in the case of repossession, sale of the property could result in a reduced realisation value, as the purchaser would have to be a residential property investor. Alternatively, separate leasehold titles would need to be created to enable the sale of individual units.

But the extra risk can be mitigated by making sure that certain rules are followed, such as limiting the number of units in the property and ensuring they have separate en-trances and no shared facilities.

Other key points would include keeping the LTV to a reasonable level to give the lender extra security and ensuring that the valuer provides information on the overall value of the property, its saleability in its current configuration plus an estimate of the rental levels achieveable by each unit.

And in the event of a default, we could apply to the Land Registry for each of the units’ leasehold titles, exercising the powers contained in the mortgage deed.

Our experience has shown that this type of lending, al-though not without its risks, is realistic and profitable for all parties.

Prior to offering a specific product to the whole market, we undertook considerable research and worked with a few selected brokers to clarify matters. Our conclusion was that multi-unit properties are a viable option for lenders prepared to underwrite against a set of realistic criteria.

Subject to valuation and normal referencing and by allowing direct access to underwriters, each case can be look-ed at on its merits, providing greater flexibility while ensuring competitive and timely deals.

In this case, the proposal meets all our requirements. Salt would be able to offer a fixed rate of 5.68% until August 31 2009 and would consider up to 75% LTV. An application fee of 1.5% covering all five units could be added to the mortgage amount.

The rental cover requirement would be 100% of the initial pay rate, based on the combined rental income from all five units. If the rental fell short of this, we would allow your client to top it up from other verified sources of income, such as employment.