Multi-Unit Freehold Block Mortgages

A multi-unit freehold – or multi-unit freehold block (MUFB) – is the name given to any group of independent properties that are listed under one freehold title, not multiple leaseholds. This could include a block of flats, a row of terraced houses, or a house that has been converted into flats.

Each property listed on the title is self-contained and can be rented out separately by different tenants. They will all have the following characteristics:

• Each home will have its own Assured Shorthold Tenancy (AST) agreement
• Each home will have private areas which cannot be accessed by others within the freehold title
• Each home has a separate entrance
• These homes may share common areas, such as entrance halls or gardens
• The yields for multi-unit properties tend to be higher than for average Buy to Let properties

Why do I need a special mortgage for multi-unit freehold blocks?

Contact CLS Money, and our team will help you get an idea of the costs that might be involved in taking out a multi-unit freehold mortgage, as well as how much you will be able to borrow towards this type of investment.

It’s always worth chatting with our mortgage broker before making any decisions because mortgages on multi-unit freehold blocks work a little differently than those designed for standard Buy-to-Let arrangements or even Houses in Multiple Occupation (HMOs).

Taking out a speciality mortgage for your multi-unit properties will allow you to manage the mortgage as one, rather than having each home under a separate mortgage and wasting your time and potentially your money on maintaining each of them individually. This kind of agreement will remove a lot of the complexities of managing multiple Buy to Let mortgages whilst trying to keep on top of changing terms and tenancy agreements.

What’s the difference between a multi-unit freehold block and an HMO property?

In an HMO property, all kitchens and bathrooms are shared, with each tenant having their own separate bedroom. An HMO is classified as a property that is let to three or more people from two or more households.

Multi-unit freehold blocks comprise completely separate properties that are let out individually, although held under the same freehold.

What are the benefits of taking out a multi-unit freehold block mortgage?

There are plenty of reasons why you might want to take out a multi-unit freehold block mortgage:

• Demand for affordable rental properties is at an all-time high – so in theory, there’s never been a better time to purchase a MUFB. All kinds of tenants are attracted to MUFB properties, from students and young professionals to couples and families who are in between homes or simply looking for more flexible living arrangements.
• These types of mortgages are available on both interest only and interest and capital repayment bases. The latter is an attractive option for investors who want to generate more equity in the property over time, instead of having to repay the entire loan at the end of the term.
• The average yield on this type of property is much higher than a standard Buy to Let, meaning incomes can be greater.
• Having multiple units means you have multiple sources of income, which can reduce the risk of cash flow issues within your Buy to Let business and support diversification. You’ll also have more security, as any rental voids will have minimal impact on your investment’s overall profitability.

Multi-unit freehold block purchases are generally seen as more economic and efficient in comparison to renting out multiple separate properties, as all properties will be considered under one single tailored agreement. We would always recommend that you speak to a specialist accountant to understand the tax benefits and implications for your specific circumstances.

What are the criteria for securing a multi-unit freehold block mortgage?

Different lenders will have different eligibility criteria for multi-unit freehold block mortgages. However, here are some of the terms and factors that you may typically see applied to these kinds of agreements:

• The maximum loan to value (LVT) tends to be around 75%, although can be as much as 80%
• These types of mortgages are available to both individuals and limited companies, so investors can choose their desired level of personal liability and, in many cases, use their SPV to make their investment much more tax efficient
• Lenders are more likely to give this type of mortgage to experienced landlords rather than first-time buyers – but there are some mortgage providers out there who will consider those new to multi-unit freehold blocks
• There may be restrictions on the number of units that are allowed within the freehold. This is something that will need to be checked with the lender before you submit your application
• The interest cover ratio (ICR) will likely be based on the expected rental value
• Most lenders will only provide loans to those aged 18 or over, and some may want you to be over 21. There may also be upper age limits imposed, as more senior owners can be seen as a higher risk.

At CLS, we have a huge amount of experience working with clients who are looking for multi-unit freehold block mortgages and will be more than happy to introduce you to deals from the most suitable lenders.

How do I know if I’m eligible for a multi-unit freehold block mortgage?

When it comes to taking out a multi-unit freehold block mortgage, the affordability criteria is much more relaxed than with a typical residential mortgage and will usually focus on the following:

Your income

Most lenders will require you to earn over £25,000 per year and have enough to cover the monthly repayments. That said, their main concern will be the viability of your investment rather than precisely how much you earn every month.

Your lender will want an insight into how much you expect to earn from your freehold rental properties and whether these will cover your mortgage repayments. If you are already a landlord, they may want to take a look at your existing and historical accounts to get a better idea of your income. If you are brand new to the Buy to Let market and don’t have any other properties to your name, they will likely take into account the kind of profit that similar properties are making, bearing in mind the property’s location and the demand for rent in your area.

You should be looking for a rental income that is around 145% of your mortgage payment in order to meet the lender’s affordability criteria.

Your age

To be accepted for any mortgage in the UK you must be over 18 years old (although most Buy-to-Let lenders will prefer you to be over 21). You may find it tricky to be accepted for a mortgage when you’re over 75, as you will be considered a higher risk. Don’t worry too much, though, as many of today’s providers can offer agreements without upper age limits – and we’ve worked with many of them in the past.

The property type and intended use

It’s generally easier to secure a mortgage on a standard build as opposed to a house or apartment with more unique features, such as a listed property. Many lenders are not interested in providing loans for these kinds of properties as they are deemed to be too much of a risk – but again, there are deals available from companies with higher risk appetites.

It’s also much easier to get mortgages on Standard Buy to Let properties that are being let out to single households. Fewer lenders are willing to give you a mortgage on multi-unit freehold block properties. However, you can rest assured that those who are offering deals have a thorough understanding of what’s required from landlords, and have adapted their rates and terms to account for those who want to invest in these specific types of buildings.

What kind of deposit will I need for a multi-unit freehold block mortgage?

For any Buy to Let mortgage, you will usually need a larger deposit than you would for a standard residential property purchase. Most lenders will be looking for something around 25%, giving you a loan-to-value (LVT) of 75%. This is because it lessens the risk associated with providing the loan, as there will be more equity in the property. For comparison purposes, an acceptable LTV for a residential mortgage would be around the 90% mark.

Although you could be accepted with a lower deposit if you’re investing in a property that is expected to make a good rental income, it’s always best to try and raise as much money towards your purchase as you can. Doing so will give you access to better rates and terms moving forward.

What is your loan to value (LTV)?

To work out your LTV, input your figures below.

What kind of rates are usual for a multi-unit freehold block mortgage?

Multi-unit freehold block mortgages tend to be a bit more expensive than typical Buy to Let agreements, although this doesn’t necessarily mean they’re out of reach. Many specialist lenders still offer very reasonable rates to their customers, so it’s possible you could end up paying similar to what you would for a more ‘vanilla’ property.

As always, the deals you are offered will be based on your finances and your unique personal situation, which is why it’s so crucial to get advice from an experienced mortgage broker from the very beginning of your mortgage journey. It’s the only way you can be sure you’re getting the most competitive interest rates and terms from a lender who understands your goals and has the means to help you achieve them, securing your mortgage application.

Is it worth investing in a multi-unit freehold block property?

Both HMO and MUFB properties are attractive to landlords as they present a much higher income opportunity and less risk than owning multiple Buy to Let properties. They’re also appealing to tenants as it can cost a lot less than renting a single property to themselves.

Having said this, there are a lot of complex legal requirements involved in taking on these kinds of properties, alongside the additional stress of managing multiple tenant occupancies.

Whether or not investing in a multi-unit freehold block property is the right move will very much depend on what you can afford in the short term, and what you’re looking for from your investment long term. The mortgage advisors here at CLS Money are all expertly trained to provide advice and tax-efficient lending options for your multi-block purchase and will be able to help you plan an investment strategy that works for you.