Multi-unit freehold block mortgages
Multi-unit freehold blocks (MUFBs) can represent a very good investment opportunity. They can provide extra security by reducing your exposure to rental voids. Furthermore, they can typically give a better yield when compared to a single residency Buy-to-Let property.
However, they are not to be confused with a House of Multiple Occupation (HMO). An MUFB will have self-contained units with their own kitchen and bathroom facilities.
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What is a multi-unit freehold mortgage?
A multi-unit freehold block (MUFB) is one freehold property that is typically split into individual flats with no individual leases.
It can also apply to circumstances such as a row of terraced houses, again under one title.
Your Buy to Let Situation
Why you would like a Buy to Let mortgage is unique to you. We approach mortgages for your individual needs.
What types of Buy to Let mortgages are there?
There are a variety of things to consider when looking into a Buy to Let mortgage.
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The best way to find out if you qualify for a buy to let mortgage is to speak to a mortgage advisor.
How do I apply for a multi-unit freehold mortgage?
When looking to obtain an MUFB mortgage, typically you will not be able to use a standard high street lender. Instead, you will need to use a specialist lender that was created in order to lend on these properties.
The reason for this is due to the complex and slightly risky nature of these mortgages. A lender will need to assess the potential rental income and overall block value in addition to their normal checks. Furthermore, they will need to account for any void periods where you may not receive any rent.
These specialist lenders have underwriting criteria specifically designed for multi-unit freehold properties. Therefore, their bespoke products usually are the best bet for most individuals.
Not all of these lenders can directly be accessed without a broker or intermediary. Therefore, if you’re interested in how a multi-unit freehold property could be an option for you, contact us today.
What to consider when looking for an MUFB mortgage?
Being a relatively specialist area of the Buy-to-Let sector, obtaining a multi-unit let mortgage can come with its difficulties.
However, for most it is definitely possible, it’s all about knowing where to look.
Some things to keep in mind when looking for a MUFB mortgage should be:
- Usually available up to a maximum of 75% of the property value or purchase price. However, on occasion lending up to 80% may be possible
- They are typically available to first-time landlords (FTLs), but usually not first-time buyers (FTBs).
- Restrictions typically apply to the number of units in each freehold property. Although, it may be possible to find finance on unlimited numbers.
- You can obtain a loan through limited companies or as an individual.
- There are both interest-only and capital and interest repayment methods available.
The interest cover ratio (ICR) is typically based on overall rentable value.
What are the benefits of an MUFB?
Choosing to obtain an MUFB mortgage can come with a variety of benefits for a property investor. Some of these benefits include:
- Increased rental income: Owning a block with multiple units allows you to collect income from several tenants, therefore maximising your potential returns.
- Reduced void risk: Even if one unit becomes vacant, you still have rental income coming from the others. This reduces the overall risk compared to a single-let property.
- Potential for individual unit sales: With separate titles, you have the flexibility to sell units individually in the future.
- Simplified management: Compared to managing multiple separate properties in different locations, an MUFB can offer benefits of consolidated management and maintenance.
- No licensing requirements: Unlike Houses of Multiple Occupation (HMOs), MUFBs with self-contained units typically don’t require additional licensing.
What are the drawbacks of a MUFB?
As well as having some great benefits, MUFBs also come with some drawbacks:
- Lender availability: Many lenders shy away from financing MUFB properties due to the perceived complexity and increased risk. This significantly narrows down your options in finding a mortgage provider.
- Higher interest rates: Those lenders who do offer MUFB mortgages may impose higher interest due to the perceived risk.
- Larger deposits: You’ll likely be required to put down a larger deposit, sometimes as much as 25% or more of the property’s value.
If you’re interested in obtaining an MUFB mortgage, why not reach out today? Our expert advisors can discuss your needs and help you find the right deal.
Phil Scott
Director
About the author
Phil has worked in the financial services industry since 1992, having started with a large insurance company. He went self employed in 1996 as an Independent Financial Adviser before setting up his first company, Needham Market Home Financial in 1999.
After four years, he decided to concentrate solely on mortgages and related insurances, and The Mortgage Centres was born. Since then, Phil has been influential in the opening of several new offices as the business continues to grow.
Qualifications
Financial Planning Certificate: 1,2 & 3
Year Attained: 1992
Certificate in Mortgage Advice and Practice (CEMAP)
Year Attained: 2001
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