BTL Mortgages

[bdh198]

I've just been using the NLA mortgage search engine for BTL mortgages and I'm a little confused by some of the lending criteria required by lenders that is revealed when you look into the details behind the offers.

In particular, I've noticed that a number of lenders state they will not lend on a flat in a freehold property, and those that do have much stricter lending criteria (50% max LTV, minimum property value £300,000 etc). What is the perceived risk from lending on a flat in a freehold property that makes them reluctant to lend? This must surely affect a lot of landlords, and seems particularly strange when may of those lenders are nevertheless prepared to lend on new build flats and flats over commercial premises which must surely carry more risk for the lender.

It maybe that I've misunderstood what they mean by 'flat in a freehold property' but I interpret it as including flats with a lease (upon which they'll be lending) in a freehold property, not simply a flying freehold.

I'll be interested to know if anyone has any experience of securing a BTL mortgage on a flat in a freehold property and whether they had any problems securing the mortgage.

Solent

[Richlist]

I think you have misunderstood.

A flat in a freehold property is a different animal to a leasehold flat. Freehold flats are very rare and without a lease can be more problematic than leasehold flats.

This must surely affect a lot of landlords, and seems particularly strange when may of those lenders are nevertheless prepared to lend on new build flats and flats over commercial premises which must surely carry more risk for the lender.

Be prepared for valuations on new build flats to fall short of the asking prices. Mortgages on flats over commercial premises (especially food outlets) are difficult to obtain and these properties can be difficult to sell for that reason.

[Grampa]

Normally if a flat is sold with the freehold there is still a lease and what you are buying is two entities the lease and the freehold but they are two separate things.

[Richlist]

OK Grampa raises an interesting point which I will answer.

1. My first post gave you details of freehold flats. These are rare and usually where a house (freehold) has been converted into flats but which do not have leases.

2. The second scenario raised by Grampa.....that of buying the lease on a flat and the corresponding freehold.......mortgage lenders are not that happy with a situation where you own the freehold and the leasehold if they do not also have a mortgage on the freehold. You could disappear and have the flat repossessed and if the lender did not have a mortgage on the freehold as well, it would end up with a missing landlord situation when they tried to sell the flat to recover their loss.

Its the old chesnut about risk & return. You know, the one that many landlords forget to consider. Oh, sorry, must try to be less cynical.

[Carryon Regardless]

Can I have a go ?

The freeholder (landowner) holds the rights to the land but there is a lease granted for the use of the property built on it, the leasehold flat.

As there is a leaseholder that entity (Ltd company often) has a responsibility toward management for which each 'flat owner' is likely to pay ground rent and maintenance charges for.

There are different styles of funding such maintenance works but as there is a responsibility for the 'overall management' the mortgage company has less risk of disrepair that individual flat owners may deny responsibility for or not have ability to finance. They perceive that the 'flats' will be kept to a value rather than possibly deteriorate thereby reducing the value of their mortgaged property.

How does that sound ?

Next ??

[bdh198]

The thing that has confused me is the wording 'flat in a freehold property'. That seems to cover any freehold property which contains individual flats, and fails to distinguish between flying freeholds (Richlist's 'freehold flats') and flats within the freehold but under a separate lease (irrespective of whether those leaseholders are also joint freeholders or if a management company or separate landlord owners the freehold).

One of my properties is a converted Victorian terrace. The freehold property is divided into three separate flats each with a separate lease. All three leaseholders own a share of the freehold. I'm aware that most lenders these days are less ignorant than they used to be of the various ways a share of the freehold can be owned (e.g. straight forward joint share making the missing landlord situation a risk, or a separate company owing the freehold and the leaseholders owning a share of that company thereby significantly reducing any risk from a repossessed or missing freehold owner). My concern is not about securing finance under a shared freehold, but the very general language about not lending on a 'flat in a freehold property'

In fact the definition is so wide it would seem to cover almost every flat since almost every flat is going to be in a freehold property!

I suspect that the NLA mortgage search facility simply uses extremely sloppy language and the individual lenders will need to be contacted to clarify their lending criteria.

[Richlist]

The thing that has confused me is the wording 'flat in a freehold property'. That seems to cover any freehold property which contains individual flats, and fails to distinguish between flying freeholds (Richlist's 'freehold flats') and flats within the freehold but under a separate lease (irrespective of whether those leaseholders are also joint freeholders or if a management company or separate landlord owners the freehold).

In attempting to answer your query, none of my posts refer to flying freeholds, these are something entirely different. It seems the wording of the mortgage criteria doesn't specifically refer to flying freeholds either.........they are your assumption/ interpretation.

Flying feeholds are another unusual type of property and as mortgage lenders don't like anything out of the ordinary I suspect some lenders will be reluctant.

A quick phone call to the mortgage providers or the NLA should clarify their meaning of the wording but my money is on freehold flats without leases as mentioned in my first post.