Creative property repurposing

THE QUESTION

I have a semi-detached house with a garage and wanted to extend the existing garage into a granny annexe.  

In the future I would like to split the deeds and keep the granny annexe to live in myself and sell the house to pay my current mortgage and have an income.

I currently have an interest only mortgage which ends in about 10 years, and my mortgage company said to put a request in to them and they would converse with land registry, if they agreed I could go ahead’

Is this a feasible project?

THE ANSWER

Here is the biggest barrier you face - the mortgage lender’s T&Cs.

if by 'granny annexe' you mean a self-contained fully functional living space with its own entrance, it’s not the regulations that prevent you, it is the mortgage lenders T&Cs - what they will and won’t allow you to do while they have a charge over your property for the money they lent to you.

Splitting the title is only part of he challenge.  First you need to know if they would permit you to change what is currently a garage into a granny annexe.

Doing what you suggest, in your lenders opinion, affects their security and to make a change of this nature you will need their permission.  There is a high likelihood that the computer will say ‘no’.

Your mortgage lender is highly unlikely to permit you to create this, because it will be a breach of their T&Cs and doing so will give them the right to call in the mortgage - which means you will have to:

1. Refinance with a different lender 
2. Sell 
3. Have your home repossessed

and in the pretty short timeframe that they will allow you before they resort to option C.

Why is this such an issue and why will you struggle to do either a) or b) if you try to sell the property as a whole?

Main residence and standard BTL lenders do not lend on properties that have multiple self-contained units on a single title, it says so in their T&Cs. 

Main residence lenders don’t want you to rent out a separate part of your home.  Taking in lodgers is fine, they rent a bedroom.  What's not fine is a fully functional living space with its own kitchen, bathroom, entrance etc.  That’s why they put clauses in their T&Cs to prohibit you doing this and courses of actions to protect their security if you do - a, b, or c as above.

Likewise BTL lenders allow you to rent the property as a whole, some allow you to rent by the room, but with shared common facilities. Their T&Cs prohibit the creation of multiple self-contained units in exactly the same way as lenders do for main residences.

If you haven’t asked your current mortgage lender’s permission and did the conversion, refinancing to a different lender will be a challenge.  Why?  Because other mortgage lenders you apply to will decline to lend as soon as their valuer spots the breach of your current lender’s T&Cs when they visit the property to value it. Likewise if you want to sell it, your buyer’s lenders valuer will do exactly the same, meaning you will struggle to sell to anyone who needs a mortgage to buy it.

Some people just do it, don’t tell the lender, hope they don’t find out and maybe they won’t, but it will be an issue at some point.

When you do come to split the title, having created a granny annexe without your lender’s permission, what they will do if you are not proposing to repay them in full at the point of splitting the title is to send a valuer round to value the remaining part of the property minus the annexe.  This is when the lender will become aware of the annexe and go to the a, b, or c options above. This will leave you with no alternative but to split the titles at that point, sell the main house to repay the lender in full and keep the garage to live in yourself.

Not as straightforward and you may hope it would be.

Avoid making it fully self-contained and you avoid the issue.

•  Interconnecting doors with the main building
•  No external entrance to the annexe and certainly not one with a letterbox that looks like a front door
•  No fully functional kitchen so that meals need to be prepared in your kitchen

These will ensure it is viewed as extended living space for the main house, not a separate self-contained living space, will not breach your lenders T&C and you can rent this out on a lodgers licence.

Making the final conversion to self-contained for you to live in and splitting the title can be done at the point you are selling the main house to pay off the mortgage.

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