Multi-units – what are they and how to finance them?

Average yields have continued to rise for multi-unit freehold blocks (MUFBs) but what exactly are they and how easy is it to finance them? Gareth Richards, Consultant Mortgage Broker explains.

What is a multi-unit freehold block?

A multi-unit freehold block (MUFB) is defined as multiple, separate, independent residential units held under a single title. This means that no one unit is subject to a lease. Examples might include:

  • Purpose built blocks of flats
  • Houses converted into flats
  • A number of houses all held under one freehold title

Properties which fall under this category have the following characteristics:

  • Multiple houses, each with their own AST agreement.
  • Private areas that are the personal space of each resident/household into which no one else has right of access
  • Separate entrances for each resident/household
  • Some also have common areas that all residents/households have the right to use, such as a hallway or garden area

Yields for multi-unit property tend to be higher than yields for vanilla buy to let property, as our Complex Buy to Let Index demonstrates.

Average Gross Yield:

  Q4 2016 Q1 2017 Q2 2017 Q3 2017
Multi-unit 7.3% 7.8% 7.9% 8.6%
Vanilla BTL 5.5% 5.7% 5.5% 5.5%

 

Multi-unit rates and terms

Buy to let mortgage rates available on multi-units are generally higher than some of those available to their vanilla buy to let counterparts, but this isn’t to say rates are highly priced. At present, landlords can expect to find rates from circa 2.65% upwards. Of course, the actual rate borrowers are offered will depend on their specific circumstances, so do get in touch if you would like free of charge quote. It is also worth noting that some multi-units can’t be financed with a buy to let mortgage, but it is often possible to get a commercial mortgage instead, particularly where the circumstance are more complex.

Commercial or buy to let? I’m not sure it really matters as long as the deal is done, as one of my recent case studies demonstrates – securing a commercial mortgage on an 8-house multi-let. As such it’s worth noting that we can help with the following scenarios:

Borrowers

  • Portfolio landlords
  • First-time landlords
  • Ex-pats and foreign nationals
  • Individuals, SPVs & trading limited companies
  • SIPPS, SAPPS & trusts

Properties

  • Multi-units comprising 2 – 100 separate units
  • Multi-units above commercial premises
  • A number of houses under one freehold title
  • Multi-units of none-standard construction
  • Part ownership of the multi-unit
    For example: There are 20 flats within a block, five have been sold off separately, yet you are looking for multi-unit finance to cover the remaining 15, all still held under one freehold.

Finance

  • Up to 80% LTV
  • Buy to let and commercial terms available

What to do next if you need finance for a multi-unit:

Call me today on 01732 471627 or email garethr@mortgagesforbusiness.co.uk to talk through options that might work for you. Alternatively, you can call the main line on 0345 345 6788, then select the Commercial Desk.

 

Commercial mortgage for developers refinancing 8-house multi-unit

We were approached by the directors of a development company who were looking to refinance eight houses they had recently built in Nottingham. They needed to raise capital on the houses, which they own on one freehold title, to repay the development loan they had taken out to fund the build.

Although the directors have some experience as property developers, they are classed as first-time landlords because this is their first project with a let rather than sell strategy.

Reluctant to split the properties out onto separate leases or freeholds, we needed to find a lender that accepts multi-units. This is not normally difficult as many specialist lenders operate in this area, however, the funding options were limited because of the overall complexity of the scenario:

  • The units are houses. Most lenders willing to accept multi-units will only accept flats
  • The directors are both first time landlords. Most lenders like to see experience, especially when it comes to renting out multi-unit property.
  • The company structure is complex. It is a trading business (not SPV) consisting of two directors and four shareholders. To confuse matters – one of the directors holds no shareholding in the company and the majority shareholder is based in the US.
  • Only 25% of the units had tenancy agreements in place. Most lenders prefer at least 25% of a new development to be tenanted on application for finance.

We took the case to one of the specialist lenders, which we knew would underwrite the deal on a commercial basis as it was far too complex for buy to let terms. We started negotiating using the following points as leverage to secure a deal:

  • Strong outside income – both directors work as accountants for multi-national firms
  • Low loan to value – the directors were only looking to borrow 54% LTV
  • Strong rental location – the houses are well built and in a strong rental location

After a relatively small amount of to-ing and fro-ing, the lender issued terms that were acceptable to our clients and we were able to get the funds released just one month after the formal mortgage offer was made. Here are the details of the deal:

Property value: £2.3m

Loan amount: £1.25m

LTV: 53%

Rate:
Tracker at 3.49% (Bank Rate + 2.99%)


Term:
25 years interest only

Borrower: Trading Ltd company

RTI calculation:
125% @ 5.5%

Mortgage payment: £3,636 pcm

Rental income (combined): £8,525 pcm

Lender Arrangement Fee:
1.25% (£15,625)


Gross yield:
4.5%


Consultant:
Gareth Richards, 01732 461627


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