Converting house into flats

13 May 2014
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United Kingdom

My mother owns a 4 bedroom house in clapham, london. The house was worth 1.4 million when last valued in December last year.

My mother has £70,000 left on mortgage but only an income of £8k p/a

Her low income makes it very hard for her to get a mortgage

I believe it is very important for my mother to keep hold of this property as there is planned regeneration work in an already affluent area so cannot see these house prices declining.

As she would like me to get on the ladder we have looked at the possibility of converting the house into flats. It currently has enough square meterage required by the council and both adjacent properties have fully extended although there are few examples of conversions like this on the road.

So the plan would be to convert the house into 3 self contained flats. 1 x 3 bedroom, 1 x 2 bedroom and 1 x 1 maybe 2 bedroom flat. One for my mother, me and one rented.

This would provide funds from the rented flat to pay of remortgage and my rent to support my mother as a pension.

I have estimated work to cost £220000. This would include loft extension, ground floor side extension and a second storey extension. The house will also require some underpinning but this is not a huge problem.

We would need to remortgage to raise funds for the work roughly £150,000.

My mum would have liked for us to buy a house together as she is getting older but have explained that I need my own space and see this as a great option to be close, keep the house as an investment and to stay in the area.

It may also be detrimental to turn I to flats as I reality I am not sure wether this would add on that much value than if we renovated into a family home and sold but that would mean losing the house.

I would love some advice on the following:

Has anyone undertaken this kind of project and have any advice?

Are there any legal/tax implications we should be aware of especially if selling after conversion?

Does this sound like a good idea?

Is my budget realistic?

Where is the best place to get advice?
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Sell it, buy 2-3 houses by the seaside to rent or live in, get rid of mortgage and have a nice little nest egg for mother to enjoy.
My mum would have liked for us to buy a house together as she is getting older but have explained that I need my own space

Doing all this to her house will be very disruptive for her. If it isn't what she wants, but you need your own space, look at buying two houses nearby somewhere less expensive (ie almost anywhere else in the country), and lose the mortgage.

i.e. take into account more what your mother "would have liked", that is to say, what she actually wants.

Are there any legal/tax implications we should be aware of especially if selling after conversion?

Capital gains tax.

Consider what will happen if your mother has to sell her property to pay for care (this may include the rented flat you're living in).

If you are renting a flat from your mother to provide her with a pension, then you won't own the flat and 'be on the housing ladder'.

Have you considered where you will live while the work is done as redevelopment on this scale probably means the building will be uninhabitable for about a year? Paying rent for a year will be a significant expense.

Do you have sufficient off-street parking to satisfy the council for creating 2 new dwellings?
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Firstly, thank you for your replies. In answer to some of your questions;

We do not want to sell however this of course is an option but we would wait 5 years then reassess.

My mum is very much in favour of the flat scenario. It would be much more beneficial for me to tell her to sell tomorrow and she would but I do not think it would be wise to sell.

I have taken into account a years rental in my budgeting separate from the 220k for work.

I will be living on site through majority of work. I recently refurbished a house in Wimbledon where I did this and it is not easy but to get a flat in an area I could never afford makes the roughing worth it I think.

My mum is happy to sign over house into my name. She would receive roughly 17k a year from the rentals giving her 25k p/a pension.

I would be paying off mortgage and I have taken into account months without rent, tax and maintenance. ( the estimates are very conservative)

The council have told me that the parking would not affect any application. I have double checked this.
My mum is happy to sign over house into my name.

Would you then be liable for £70,000 stamp duty?

My mum would be gifting the house which I though would exclude me from SDT.. I may be wrong

I don't think so. SDT is payable on the market value of the property regardless of whether it's gifted etc.

Edit: seems I am wrong:

Property given as a gift

If the property is received as a gift there's no SDLT to pay, so long as there's no outstanding mortgage on it. But if the person who receives the gift takes over some or all of an existing mortgage, then SDLT may be payable if the value of the mortgage is over the SDLT threshold.

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