Specialist buy-to-let mortgages:
Multi-unit freehold blocks (MUFB)
A multi-unit freehold block (MUFB) contains two or more separate, self-contained homes held under one freehold title. Each unit normally has its own kitchen, bathroom and entrance, although hallways, gardens and other communal areas may be shared.
Typical examples include a house converted into flats, a purpose-built block owned under one title or several houses situated on the same freehold.
MUFBs and HMOs
An MUFB is not the same as an HMO. HMO tenants rent rooms and share facilities, whereas each MUFB unit provides complete, self-contained accommodation.
A building containing both self-contained flats and non-self-contained bedsits may require a different lending approach.
Our HMO & MUFB decision tree should help you determine if your property is a standard BTL, an HMO or a muti-unit freehold block.
Small and large MUFBs
Definitions vary, but lenders commonly treat blocks containing up to six units as small MUFBs and those with seven or more as large MUFBs. Larger blocks have fewer mortgage options and generally require more specialist underwriting.
Lenders may also restrict properties containing very small studios, units below a minimum floor area, unusual layouts and blocks containing commercial premises.
Tenancies and rental income
Each unit will normally have its own tenancy agreement. Lenders calculate affordability using the combined rents across the block, although they may allow for management costs, maintenance and vacant units.
An established MUFB may also be assessed using its tenancy schedule and historic rental receipts. See Rental assessments & affordability calculations for more detail.
Planning, conversion and licensing
The lender will require evidence that every unit has the appropriate planning permission and building regulations approval. A property physically divided into flats without the necessary approvals may be difficult to mortgage, even where it has operated in that form for several years.
Some converted blocks can be classed as Section 257 HMOs where the conversion does not comply with the relevant building standards and more than one-third of the flats are rented. Councils can include these properties within additional licensing schemes. Selective licensing may also apply to the individual rented units.
Valuation
A block or investment valuation considers the property as one income-producing asset, including its sustainable rental income and an appropriate yield.
Some lenders may permit an aggregate valuation based on the theoretical combined value of the individual units. However, this will not necessarily equal the full sum of separate flat values because the units remain under one title and cannot usually be sold individually without first creating separate leases.
The valuation method can materially affect the maximum mortgage. For a larger block, choosing a lender with access to experienced commercial valuers may allow the specialist mortgage broker to request an appropriately qualified local valuer.
Multi-unit leasehold blocks
Multi-unit leasehold blocks are rare but do arise occasionally. The borrower may own several self-contained units under one leasehold title or hold a long lease over the entire building.
These properties are extremely specialist and accepted by only a small pool of lenders. The lease term, ground rent, service charges, repairing obligations and restrictions on subletting will all be examined closely. Advice from an expert specialist mortgage broker is particularly important.
Landlord experience
Some lenders consider smaller MUFBs for first-time landlords, but many require previous buy-to-let experience. Larger blocks and properties with complex planning or title arrangements are more likely to require an experienced landlord and professional management.