Should you buy an illegal conversion?
I am looking into a BTL with tenants in situ. It’s a two- bed house, with a studio annexe; both with separate tenants.
The annexe does not have planning permission, but has been let out as a studio for several years.
In the land registry, it's one property with one title deed. There are no separate leases or any lease. Owned by one person, under whose ownership the annexation occurred.
I spoke with Planning, they feel that it may become an authorised flat, if continuous occupation for over 4 years is possible to prove.
What would the lenders view be on a property like this?
You have two issues here that make obtaining a mortgage pretty much a non-starter:
- An illegal conversion
- Multiple self-contained units on a single title
Mortgage lenders don't like properties where planning rules have been flouted. That's why they won’t lend until you have obtained retrospective planning approval – a Certificate of Lawfulness, to give it its correct title.
That means you need to buy it first, sort out the planning issue, then it will be mortgageable.
The bonus here, if you are smart, is that the current owner has created a problem for themselves. Creating an annexe in breach of planning laws now limits who can buy their property i.e. no one that needs a mortgage. Who is left as their potential buyers? Those with the cash, or savvy investors that know bridgers will lend on this.
How does this help you? Well, when you limit your market to sell to, you reduce the value of the property and only people willing to take on the problem because they know how to solve it will buy it, BUT they certainly won’t be paying top money to buy this type of problem, so it will get sold at a knock down price.
If you buy it cheap and solve the issue, you will add exponential value, which will allows you to refinance with a mortgage at the uplifted value your problem solving created.
However, you won’t then be able to refinance on a standard BTL mortgage. Why? Because those lenders don't lend on properties with multiple self-contained units on a single title. You need a specialist mortgage, specifically an MUFB mortgage - Multi Unit Freehold Block – and that means you’ll need an experienced broker to find you the right product for you situation.
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