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:

Use

• 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;

Ownership

• 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 an 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.

Next steps

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 NeedingAdvice.co.uk Ltd, 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.

FAQs – Mortgages with Annexes

Can I get a mortgage with annexes?

Yes, you can get a mortgage with annexes but you may need to fulfil the affordability criteria set by lenders. If you are interested in getting a mortgage on a property with annexes, you can contact a mortgage broker to help you with your application.

Can I get an annexe mortgage on residential property?

Yes, you could get a mortgage on a residential property with annexes. The main thing to consider when applying for a mortgage is whether the property is suitable for the purpose for which you intend to use it. You must also ensure that the property meets the lending criteria set out by lenders and you are out of any kind of credit risk.

Can I get an annexe mortgage with a bad credit score?

Yes, you should be able to secure a mortgage with a bad credit history provided that you meet the lender’s requirements. However, you may find that the interest rate charged on the loan is higher than what you would normally expect. It is important to note that there are no guarantees when it comes to obtaining finance. So it is better to contact a broker for professional advice.

Can I get a second mortgage on a property with an annexe?

Yes, you may be able to obtain a second mortgage on a residential property that has an annexe. However, this type of loan is typically only offered to those who already own a property. In addition, you must make sure that the property meets the lender’s lending criteria.

What is a granny annexe?

An annexe is sometimes referred to as a granny annexe or a granny flat because of its traditional purpose to provide housing to older family relatives.

Are there any specific requirements for this property type?

Yes, there are specific requirements for such property types and it will depend on the use of annexe, construction type and facilities.

How a broker can help you get approved for a mortgage on a property with an annexe?

A broker can help you apply for a mortgage on a residential home with an annexe. They will do so by helping you identify the right lender and negotiating the best deal possible. This includes finding out about the different options available to you and ensuring that you qualify for the most appropriate loan.

Can I Get a Mortgage for an Annexed Property as a Single Applicant?

Yes, you can also get an annexed property as a single applicant but you may need to contact a mortgage advisor before starting the application process.