Transforming a 4-bed to 4-flats

THE QUESTION

We are converting a 4-bed house into 2 x 1 bed flats and 2 x 2 bed flats. We were going to sell, however we are now thinking about forming a company, keeping and renting them through this. Which lenders lend on a development which has just started please? Should we put one property into a company or four separate units?

We bought it in joint names personally with a mortgage. We have done the footings and part of the build.

THE ANSWER

If you want to keep a property converted into four flats that will be a commercial mortgage and it will be possible to keep the property on a single title post conversion.

One point to clarify; presumably you have obtained planning permission to convert into four flats, or you bought the property with existing planning permission? No mortgage lender will touch an illegal conversion with a bargepole and it is the first thing any lender’s surveyor checks with the local planning office when valuing converted flats.

Commercial mortgage lenders only lend on completed, tenanted projects. There may be an opportunity for one who does a refurb loan, your project may be too extreme to qualify, but it is worth putting to them.

Commercial lenders readily lend to a Limited Company, so that will present no problems. There should be no reason you cannot transfer ownership to a Limited Company. However, it would be worth checking with your solicitor (who handled the purchase) as to whether any additional stamp duty payment would be required. Also check with your accountant as to the tax implications of any transfer of ownership.

Any additional borrowing will be determined by

1. How much the property is worth right now in its current state
2. How much the end value (GDV) will be
3. How much you currently owe to your existing mortgage lender
4. Exactly what work you are doing. Your mention of footings would indicate you are increasing the footprint and it is not just an internal conversion.

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