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I'm looking to buy a house (first time buyer) and I've seen an interesting property that is currently a (empty) retail space on the ground floor, and the above space is a self-contained flat (which is currently occupied by an assured shot-hold tenant). I would be interested in buying the property and converting the downstairs into a residential flat; then I would live in one flat and rent the other one out. My question is as the second flat will be self-contained will this be covered by a residential mortgage?

All of the research I've done mentions renting out rooms in your house. I can't seem to find anything applicable to this.

EDIT: I'm based in UK, Nottingham to be specific

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It depends on the terms of the mortgage. Generally speaking, residential mortgages specifically prohibit letting out a property without the bank's express permission -- but as you say, that tends to assume that the whole property is being let, not just a part of it.

Conversely, buy-to-let mortgages generally prohibit living in the property yourself!

The final arbiter as to what is allowed under a mortgage is the mortgage provider; so the safest option is to speak to one or more banks, and see what they say.

(Note that if you're changing the use of part of a property from business to residential, you may need to apply for permission; check with your local council.)

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    This answer would apply pretty well in the US too. Instead of "local council" it would be "zoning board." (And it's easier to change mixed use to single use than the reverse. Putting business in a residential zoned area, not easy) – JoeTaxpayer Aug 3 '15 at 17:12
  • In the US, I don't think it would be all that hard to get the mortgage for the above - it's easy to get the residential mortgage that covers this. The zoning might be harder, though - in fact, we have an area just at the end of the next block up that is up for development, and it specifically must be mixed use (cannot be all commercial or all residential). – Joe Aug 3 '15 at 18:59
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    I spoke with the local council and they said permission wouldn't be needed, I would just need to inform them that it was now being used for residential purposes rather than commercial. – Moogle Aug 5 '15 at 9:27
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I'd talk to a solicitor and see if you can structure the purchase in a way that breaks the property into three pieces. One would be the freehold of the whole building, one would be a long lease on the downstairs part (on which you would get a residential mortgage) and one would be a long lease on the upstairs flat (on which you would get a buy-to-let mortgage). Since there's essentially no price premium for freehold as opposed to long lease, you should be able to raise enough money from the two mortgages to fund the purchase.

  • That sounds like it might be the ideal solution. However I'm confused as to how it would work with regard to the two leases and the freehold of the whole. Surely I would need to own the whole property before I can split them up (and therefore would need a mortgage for that)? – Moogle Aug 4 '15 at 8:23
  • @Moogle That's why you need to talk to a solicitor. In theory, you might be able to structure the transaction in such a way that you acquire the freehold and then immediately create both leases, but I'm not an expert on that. – Mike Scott Aug 4 '15 at 16:44
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NO

Even worse, most BTL(buy to let) lenders will not lend if you are going to be living in the property.

There are very few lenders that will touch something like this. It is likely you will also need to use bridging for the time the building work takes at something like 1.5% per month!

Try posting the question to http://www.propertytribes.com/ as there are a few UK mortgage experts on that site.

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The simple answer is to get a residential mortgage first, and once you have secured the loan, do whatever you want. The bank only cares about what risk they are taking on the day of closing and won't care afterwards so long as you pay the mortgage on time.

Residential mortgages are going to give you better rates than rentals, generally.

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    I'm sure the mortgage company will care if they find out you're breaking the terms and conditions of the mortgage agreement. – Ganesh Sittampalam Aug 3 '15 at 18:22
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    If I read this correctly, you are advising fraud. – JoeTaxpayer Aug 3 '15 at 18:56
  • ...and if the bank do find out, they could well demand repayment of the whole mortgage for breaching the terms & conditions. – Steve Melnikoff Aug 3 '15 at 19:20
  • Happens all the time. Though it might violate a contract, it's not fraud if your conditions change and you have to rent out part of your home to make the mortgage payment. A bank would much rather have this happen than to have to foreclose on the property. – Chris Ballance Aug 5 '15 at 0:16
  • @JoeTaxpayer breach of contract is not the same a fraud. – Chris Ballance Aug 5 '15 at 0:26

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