Another HomeMove forum query

In case it is of general interest, here is another query, and my reply, on the homemove.co.uk legal forum

The query:

Please help! conversion of house to flats and existing mortgage lender rules

Hello,

I’m tied in for 2 years into existing 230k mortgage on a house valued at 500k. Repayment penalty of 5%. That I’ve come to terms with.

I am getting planning permission to make into two flats to sell flat 1 and live in flat 2. Flat 1 worth 280k on sale and flat 2 worth 350k.

Therefore I pay off my mortgage or keep or take out a small one. I have a loan from my parents for the conversion.

Problem is I’ve found out I should tell my mortgage company. It says any building work have to tell. When should I and Will they say no? Presumably on making a lease the mortgage company finds out anyway on release of title deeds. I won’t have the capital to pay off existing loan till sale and also very wary of idea of bridging loan at high interest rates.

Worried if I go ahead and build then the mortgage company might cause me problems. Is there any negotiation I can do? When I speak to my conveyancing solicitor what should he do? He suggested writing to my company but I’m worried it’ll write off my plans completely.

The whole idea is on sale of the flat I’ll pay off mortgage anyway and already face a big redemption penalty anyway. They will make 10k from me on redemption penalty.

What do I do? Any advice???

Please help.

My reply:

There are two aspects here –

1: It is likely that, if the lender does agree to you carrying out the work, it will convert your loan to a commercial (higher) interest rate and may charge an arrangement fee and re-valuation fee; it really depends on the lender

2: The lender will be worried at the risk that, partway through the conversion, you run out of money and leave the job incomplete, devaluing the property as a whole – that is the usual reason for a blank refusal. The lender is more likely to agree to the project if you can demonstrate that you have planned and costed it professionally and that the work will be supervised properly. You will need inspections under the Building Regulations anyway. I suggest that, rather than get the local council to do these inspections, you employ an “approved inspector” to oversee the project as a whole as well as dealing with the Building Regs inspections.

Before you do anything, though, try to speak to someone sufficiently high up at your lender’s to explain your plans and find out whether they might agree and, if they migght, what information, paperwork, etc, they want to be able to consider it properly