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With competitive average yields on offer, many landlords and property investors choose to diversify into multi-unit freehold blocks (MUFBs). What exactly are they, and how easy is it to finance them?

What is a Multi-Unit Freehold Block (MUFB)?

A multi-unit freehold block is typically defined as a property split into individual flats that are all held on one single lease. Some other examples might include:

  • Purpose-built blocks of flats
  • Houses converted into flats
  • A number of houses all held under one freehold title

Properties which fall under this category may have the following characteristics:

  • Multiple houses, each with its own AST agreement.
  • Private areas for each resident/household, into which no one else has right of access
  • Separate entrances for each resident/household
  • Some also have common areas that all residents/households have the right to use, such as a hallway or garden area

 

Average Gross Yield for MUFBs

Average yields for multi-unit properties tend to be higher than that of vanilla buy to lets, providing landlords with much higher investment returns.

 

Q2 2022

Q3 2022

Q4 2022

Q1 2023

Multi-Unit

7.07%

6.85%

7.08%

7.72%

Vanilla BTL

5.25%

5.84%

6.24%

6.07%

 

Multi-Unit Mortgage Rates and Terms

Broadly speaking, mortgage rates for MUFBs will be higher than for a standard buy to let property. Typically, we see pricing around 0.5 basis points higher for MUFB properties. However, it’s important to keep in mind that the higher yields on offer should more than compensate for the slightly higher cost of the loan. Search for a mortgage using our BTL mortgage calculator to find out what type of rates you could access.

Lenders generally view these properties as more complex investment types, so it can be hard to know whether you will be eligible for the loan. As such, it’s worth noting some lenders do offer on the following criteria:

Borrowers
  • Portfolio landlords
  • First-time landlords
  • Ex-pats and foreign nationals
  • Individuals, SPVs & Trading Limited Companies
  • No upper age limits
  • No minimum income

Properties
  • Multi-units comprising of 2 – 100 separate units
  • Multi-units above commercial premises
  • Several houses under one freehold title
  • Multi-units of non-standard construction
  • Borrowers with part-ownership of the multi-unit

Finance
  • Up to 85% LTV
  • Interest-only
  • Buy to let and commercial terms available

 

What are the benefits of investing in a MUFB?

Of course, the main draw to investing in a Multi-Unit Freehold Block is the higher yields on offer, but other benefits come with this investment type. For one, there is a constant high demand for these properties, perhaps even higher than that of HMOs, as the units appeal to a much wider range of tenants. Families, students, and working professionals alike are all typical tenants of these properties, so landlords can be reassured of the security of this investment, regardless of its location.

Similarly, with each tenant on their own AST, you are much more protected from void periods. If one tenant stops paying rent or vacates the property, rent from the other paying tenants will help you manage the costs. As such, you are less likely to suffer as much from the financial strain that void periods can have on your investment portfolio.

 

What experience do you need?

As a more complex investment type, lenders typically prefer to see previous letting experience on your application. For the more risk-averse lenders, there will likely be strict criteria around this, as prior experience reassures lenders of your capability and, therefore, the security of the deal. Of course, some lenders will offer to first-time investors, so it’s best to speak to a broker who can help you with your application.

 

Multi-Unit Freeholder/Leaseholder Relationship

The law stipulates that the Freeholder and Leaseholder of a property must be separate legal entities. This means that the Freeholder could be an SPV Limited Company with you as the director, which would allow you to be the Leaseholder of the property in your personal name. These restrictions and regulations are listed in the Commonhold and Leasehold Reform Act of 2002.

Put into layman’s terms, the Reform Act states that if a leaseholder fails to pay certain fees, such as ground rent and service charges, they may forfeit their lease. However, the Act also provides them with some protection and legal opportunities to correct the situation and remain in their contract. As such, due to the balance the Act provides to serve both parties, lenders are typically unconcerned if a Freeholder and Leaseholder are unrelated.

On the other hand, lenders become uneasy if you have an interest in the freehold and leasehold of a multi-unit. If you own the leasehold and the freehold in separate legal entities (i.e., an SPV Limited Company and your personal name), and manipulate the system to forfeit the lease, you will be passing ownership to the entity that already owns the freehold. While this is extremely rare, lenders’ risk assessment is always a ‘worst-case scenario’, and therefore some lenders will be very cautious about borrowers with freehold and leasehold interest. An experienced whole of market mortgage broker will be able to help you find the right lender for your requirements.

Find out how we helped one of our clients to finance a multi-unit in our latest case study here.


What next? 

To discuss any multi-unit property enquiries, please call us on 0345 345 6788. Alternatively, you can submit an enquiry here, and one of our expert brokers will get back to you.

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