Our Guide To Mortgages For Properties With Annexes
There seems little doubting the growing popularity of adding an annexe to an existing property. Instead of having to invest in an entirely separate home, an annexe might provide the answer to:
- somewhere for grown-up children to move into and call their own;
- a granny annexe;
- a place for friends to stay; or
- a holiday let to earn a little extra cash.
In other words, there is a myriad of possible uses to which you might put an annexe – some of them purely residential and some of them combining an element of commercial use.
Here we look at some considerations for getting a mortgage for a property with an annexe.
Why may it be difficult to get mortgages for properties with annexes?
With the Valuation Office Agency reporting a recent 39% increase in the number of granny annexes alone in the past two years there has also been a corresponding increase in the number of applications for mortgages for properties with annexes.
Yet, it is the very flexibility and adaptability of a property with an annexe that is likely to make it more difficult to raise a mortgage. The complications arise over two main issues – the use to which an annexe may be put and the ownership of the respective parts of the property:
- once an annexe is added, the property may be a mixed use residential and commercial, or buy to let, property;
- part of it might be used as the owner’s main residence, but the annexe let to paying tenants, for example;
- the Council of Mortgage Lenders (CML) is clear that the two separate uses require different types of mortgage – a residential mortgage (one that is regulated by the Financial Conduct Authority, FCA) and a commercial or buy to let, mortgage (which is not usually regulated by the FCA);
- you run the risk of mortgage fraud if you apply for a residential mortgage if the intention is to let the property to tenants or, apply for a buy to let mortgage if you plan to live there yourself – the potential for confusion is enough to make a house with annexe mortgage more difficult to obtain than a standard mortgage;
- who owns the principal property and who owns the annexe – issues about the details of ownership complicate even apparently straightforward granny annexe mortgages;
- if ownership of the property is by “joint tenancy”, for example, the whole of the property is owned in equal shares – so that if one owner, or “tenant”, dies, their share is divided equally between the other owners;
- alternatively, ownership may be enjoyed as “tenants in common” – so that each owner has an agreed, fixed, but not necessarily equal, share in the property – and if one party dies, their share is passed on to a named beneficiary;
- ownership as tenants in common is therefore further complicated by the identity of any named beneficiary and the potential difficulties that may be caused by changes to the living arrangements of surviving owners;
- if you are looking to buy your share by way of a mortgage for properties with annexes, you need to be aware that lenders are generally unwilling to advance a mortgage for the purchase of just part of the property – if you default on the mortgage repayments, for instance, the lender is unable to repossess that part of the property you own if someone else owns the rest of it.
What type of mortgage will I need – residential or buy to let?
In the light of these issues described above, the advice offered by the Council of Mortgage Lenders (CML), and the respective regulation by the Financial Conduct Authority (FCA), it is clear that the appropriate mortgage for properties with annexes that are to be used exclusively by the family and family members only is a residential mortgage.
If the annexe is to be used to generate an income from paying tenants, however, a mixed use mortgage – recognising the part-commercial and part-residential uses of the property – is the appropriate form of borrowing.
The Property Investment Project warns that the owner of a property bought with a residential mortgage who is in fact letting all or part of it to tenants is committing mortgage fraud.
I am buying a property that has an annexe with my family – can I get a mortgage?
If you are combining resources with a member of your family, it might be reasonable to assume that securing a house with annexe mortgage will be simple. Unfortunately, that is not the case.
If you need a mortgage to buy the property – or even to buy just a share – securing that loan might prove challenging.
Typically, lenders are unwilling to advance a mortgage to purchase part of a property because should you default on your payments, they will be unable to recoup their costs as they cannot repossess and sell a home if someone else owns the rest of it.
Putting all prospective owners on the mortgage is not necessarily a viable alternative either. Many lenders are wary of advancing mortgages to people past retirement age – and that, clearly, may be an issue for many granny annexe mortgages.
Despite the growing popularity of properties with annexes, complications over use and ownership continue to raise issues with respect to raising any necessary mortgage.
Here at Needing Advice, we have the expertise and experience to help you overcome any such difficulties and challenges by pointing you in the direction of mortgage lenders willing to help advance the necessary funds – at some of the more competitive rates available in the market.