The Complete Guide
Everything You Need to Know
- Free to download
- Detailed introduction to Multi-Unit Freehold Blocks
- Practical management insights to advantages, challenges & costs
- In-depth guide about financing options
- Real-world application & useful tools
Understanding MUFBs
The Only Guide You'll Ever Need
In this guide, we will break down everything investors need to know about multi-unit freehold blocks (MUFBs), and how specialist finance can help them invest in these assets. We’ll explore the different types of MUFBs available, the potential risks and rewards associated with these properties, and insight on the key legislative requirements involved. There are also useful tools shared, such as our free-to-use MUFB finance calculator, and a case scenario for how MUFB finance can be utilised.
What is a multi-unit freehold block?
Multi-unit freehold blocks (MUFBs) are singular freehold buildings that contain multiple self-contained units. A typical example is a tower block with multiple flats. Each one of these units can have its own entrance, kitchen, and bedrooms etc. But, there will be certain shared areas among the residents, such as hallways and outdoor spaces.
The tenants in each unit will have their own Assured Shorthold Tenancy (AST), although an MUFB itself will be a single freehold property. While tower blocks are what many think of when they picture MUFBs, they can actually take on other forms. Multiple houses or rows of houses on one freehold, and houses converted into flats can also be MUFBs.
Given the variation involved, an MUFB could have as few as two flats, or several hundred, depending on the size and scale of the asset. It should be noted that, despite also being able to house multiple tenants, there are some key differences between MUFBs and HMOs.
The difference to HMOs
The most obvious difference concerns the living arrangements. In an HMO, tenants will have their own room but will share common facilities such as a kitchen and bathroom. With an MUFB, residents will have an entire unit such as a flat or house etc. to themselves.
Still, while they are different kinds of investments, the two do share beneficial similarities. Income potential can be increased via multiple sources. Several rental incomes can be generated from a single building, which may also prove more cost effective than investing in individual properties.
Moreover, unlike HMOs, MUFB investors do not need to obtain a licence, making it easier to operate as a landlord. More generally, MUFBs can allow property investors to diversify, benefit from economies of scale, cut void period risk, and more.
There may be certain challenges to overcome in this corner of the market though. Some mainstream providers may consider MUFBs to be risky or complex investments, meaning there may be a limited number of MUFB mortgage lenders on the high street.
Also, there may be a limited number of investors in the MUFB market when compared to more straightforward residential options. This could potentially impact a resale exit strategy.
Ultimately, an investment’s potential will be dependent on the underlying investor’s circumstances. To determine if an MUFB strategy is right for them, investors should work with financial advisors and other experts for guidance.
Financing MUFBs
Attaining finance for an MUFB investment in the mainstream lending market may be difficult. Those MUFB mortgage lenders that do offer finance may have tightened criteria, or placed strict limits on how many units can be involved.
But, there are many more options available for MUFB investors in the bespoke lending market. At Market Financial Solutions, our bridging loans can be used for a broad range of investments. We have residential loans that can be put towards a swift purchase, which includes auction bids or substantial investments of up to £50m.
What’s more, bridging finance can be put towards converting or refurbishing properties, complex setups, or development exits for those coming to the end of a major project.
Our BTL mortgages, that bring bridging-like speed and flexibility to the mortgage market, may also be of use. We have no limit on commercial MUFBs, and first-time landlords are considered. We will accept up to 30 units on our residential BTL mortgage range.
Our Bridge Fusion product could also be used for an MUFB investment. This product combines the best aspects of bridging and buy-to-let, offering optionality for clients seeking a longer-term solution to ride out any market uncertainty.
Outside of standard purchases, specialist finance can also offer a way forward for MUFB investors stuck in complicated financial scenarios. Complex loans are available for borrowers investing via a complicated setup, or who may be investing from overseas.
Refinancing loans are there for investors who need to reorganise their financial affairs, find better terms, or simply gain breathing space before taking their next steps. For those who may want to utilise existing assets in their portfolio to raise capital, second charge bridging loans can help.
There are many routes available for property investors in the specialist market. To help our borrowers figure what is the best choice for them, we underwrite from day one to match them to the right financial product for their circumstances.
Types of MUFB mortgages & loans
There are many forms of MUFB mortgages and loans available to borrowers but within the categories, investors will need to examine which type of repayment plan is right for them. There are generally four main repayment options available in the market: fixed-rate, variable-rate, tracker, and interest-only.
With fixed-rate loans or mortgages, the interest rate paid will stay the same throughout the length of the deal at hand. Usually, fixed-rates are applied for a certain amount of time, known as a term, typically two years or five years. Within these terms, the interest rate will not change, regardless of external factors or base rate changes. At the end of the term, borrowers will usually move onto a standard variable rate (SVR), or refinance.
Variable rate loans work in the opposite way. With these deals, the interest rate can rise or fall as the lender sees fit. These loans may offer more flexibility for borrowers, although the costs involved can sway.
A tracker loan is a type of variable rate product that “tracks” an external rate. This is usually the Bank of England (BoE) base rate. The lenders involved do not set the rate. Instead they follow what the BoE sets. Usually, tracker rates are set just above the actual base rate, e.g. the base rate plus 1%.
With interest-only loans, borrowers are only required to pay the interest of the loan for a certain period. The principle or capital borrowed is covered at a specified date, the end of the term, or in subsequent payments.
Each one of these options will have benefits and drawbacks for investors, who will need to determine which choice is right for them. At Market Financial Solutions, across our bridging and BTL products, we have a range of payment options available.
Lending criteria for MUFB mortgages & loans
Lending criteria for MUFB finance will vary between lenders. At Market Financial Solutions, we consider applicants from a broad range of backgrounds. Investors, so long as they’re aged between 21-85, can turn to us as individuals, via limited companies, LLPs, SPVs, trusts, and more.
We also have funding available for foreign nationals, and offshore borrowers or companies. We consider applicants from any country, other than sanctioned countries.
Our bespoke BTL mortgages also have no limit on MUFB investments for professional investors. For inexperienced or first-time landlords, we may place a limit of up to 30 units on our residential range, but this will be assessed on a case-by-case basis.
All our funding must be used for investments being made in England or Wales. We embrace flexibility across all our products and so we encourage investors to reach out to us to see if we can help them with their MUFB plans.
MUFB finance calculator
To help with deciding if we’re the right lender for their circumstances, investors can use our free, interactive bridging calculators. These tools allow users to calculate how much they may be able to borrow, what will need to be repaid, and whether we’ll be able to provide them with the MUFB finance they require. It needs to be remembered that our MUFB mortgage rates will be affected by the borrower’s circumstances.
The calculators require a few basic details on the investment and the costs will be updated in real time. This includes an applicable LTV, gross and net loan amounts, and monthly repayments.
We also have Buy-to-Let calculators available which require a bit more information about the MUFB investment property, but still break down what mortgage options may be available. It needs to be remembered though, that the results will be estimations. To get exact quotes and other details, users will need to contact us and get the ball rolling with an assigned underwriter.
Application process for MUFB finance
Regardless of whether a borrower is applying for an MUFB bridging loan or multi-unit freehold block mortgage, they will follow a streamlined process throughout their time with Market Financial Solutions. All our cases are assessed on their own merits. We understand that no two are ever identical. But the steps followed to get funding delivered will be similar for most of our clients.
For all MUFB mortgages and loans, an initial enquiry will be sent through from a broker or borrower and, after an initial assessment, we will provide indicative initial terms. Should this be satisfactory to the client, we will then begin with the underwriting process, and issue a DIP.
Following this, we will move onto getting a valuation completed, and the legal requirements wrapped up. Finally, as we move to the final stages, the remaining due diligence will be completed, and funds will be transferred for draw down.
Throughout this process, our borrowers will be kept in the loop at all times by a dedicated underwriter. We will do everything we can to get a deal over the line. For the best chance of a smooth and fast result, we encourage our clients to be as open with us as possible, and have their affairs and documentation in order.
Costs associated with MUFBs
While the costs of any investment will be dependent on the circumstances involved, there are a few MUFB-specific factors that need to be considered. For starters, given their scale, the actual price of a MUFB building will likely be high in comparison to other residential or BTL assets.
What’s more, landlords investing in the MUFB market may face heightened maintenance costs. Given an investment will involve multiple units, investors need to be aware that capital may need to be set aside for when things go wrong.
Multi-unit freehold block mortgage costs may also be higher for these investments. Lenders can view MUFBs as risky assets and as such, MUFB mortgage rates may be higher than what may be found with standard BTL deals. These perceived risks may also push up any applicable insurance costs.
Then there are the common tax implications to consider. Multi-unit properties are likely to be subject to the same taxes that all properties are. This can include income tax, stamp duty, capital gains tax, and even inheritance tax.
But, there may be numerous tax reliefs available for investors and landlords in the MUFB market. Market Financial Solutions are not accountants or financial planners. To fully get to grips with what may be available, investors should seek guidance from external experts.
Risks and challenges of MUFBs
While MUFB investments can be lucrative, there are certain potential drawbacks that investors should factor in before progressing. These assets, along with multi-unit freehold block mortgage costs, are complex. Investors will need to ensure they have thoroughly planned out their investment, and make sure it fits in with their circumstances.
Managing multiple units within a MUFB will likely be challenging, as well as expensive should these units require refurbishment or conversions. On this, largescale conversions of properties into MUFBs may need planning permission from a local authority, adding another layer of complexity.
The relatively small market for MUFBs may also pose a risk for investors. Unlike with more “standard” BTL properties, there may be limited financial options for MUFB borrowers, along with a limited pool of fellow investors.
There are also the wider economic conditions to consider. Rising costs[1], tougher legislation[2], and other issues have made it harder for landlords to operate in recent years. Investors need to be on the ball with the news and the latest developments in the property market.
Managing an MUFB property
Many of the challenges associated with MUFBs can be minimised with effective management practices however. There are a few key areas landlords should focus on with their investment. Identifying the right tenants or buyers is a good place to start.
This could involve effective advertising and marketing of the property, hosting regular viewings, conducting thorough background checks on applicants, and maintaining open communication lines.
The relationship between landlord and tenants should then be maintained to create a harmonious situation, where any challenges are handled efficiently and amicably. As mentioned, every investment, and the relationships within them, will vary from case-to-case. What works for one MUFB investor may not be quite right for the next. Still, all investors could prioritise communication, organisation, and due diligence at a minimum.
Standards and requirements
On the latter, there are minimum requirements that all landlords must follow by law. Currently, landlords must[3]:
- Keep their rented properties safe and free from health hazards
- Make sure all gas equipment and electrical equipment is safely installed and maintained
- Provide an Energy Performance Certificate for the property
- Protect their tenant’s deposit in a government-approved scheme
- Check their tenant(s) has the right to rent the property if it’s in England
- Give their tenant(s) a copy of the How-to-rent checklist (which can be found on the government’s website[4]) when they start renting from them
It should be noted that there are professional property management companies who can help landlords with all this. They may be able to help free up investors’ time, cut the risk of void periods, and lower the administrative burden. But, they will levy a charge for their services. Investors will need to determine if utilising a property management company is right for them, and if they can budget for it.
Case scenario
Our MUFB mortgages and bespoke loans are designed to accommodate the complicated nature of the property market. With MUFBs specifically, the complexity of getting a project off the ground can present certain challenges for investors.
We do not offer ground up development finance here at Market Financial Solutions. But borrowers often turn to us as their developments reach their final stages, and they need to find a way forward.
Say a borrower utilised development finance to build a row of large terraced houses on purchased land. These assets, when ready for the market, could prove desirable. The investor then could let them out to tenants under a singular freehold.
But, development works can over run, creating unexpected time pressures on the investor. They may not be in a position to comfortably cover the original development finance they secured.
There are a few ways in which our MUFB mortgages can help to fund this kind of issue. Our refinancing bridging loans can allow investors to reorganise their plans, and find breathing space to secure long-term financial solutions.
Our developer exit loans can also help borrowers cover original development finance quickly, allowing them to avoid any costly repercussions. For the exit strategy, a borrower could look to long-term lenders, sell individual units in their MUFB to cover our loan, or utilise a broad range of potential financial options.
What’s important to remember is that every one of our MUFB deals will be assessed on a case-by-case basis. From day one, our borrowers will have an assigned underwriter who will ensure the funding we provide is suitable for their specific circumstances.
How Market Financial Solutions can help and how to reach us
Market Financial Solutions has never stopped lending since its founding in 2006. And since that time, we have learned to adapt to, and remain flexible in the face of the property world’s complications. Even in the current market, we’re capable of delivering tailored solutions for a broad range of complicated investments and asset classes. This includes largescale industrial complexes, HMOs that require licensing from a local authority, and MUFBs.
It’s never been easier to get started with Market Financial Solutions either. Brokers and borrowers can reach us through numerous means and regardless of how we’re contacted, we will respond to all enquiries within four hours.
Our experts can be called directly on +44 (0)20 7060 1234, and we can also be emailed via info@mfsuk.com. Additionally, the live chat feature on our website is manned by our staff, and is not an automated bot. Furthermore, our newsletter, social media presence, and press commentary can all allow investors to keep up with the latest Market Financial Solutions developments.
Conclusion
Investments in MUFBs are complicated and as such, investors will need tailored MUFB mortgages and bespoke bridging solutions to match that complexity. Largescale investments such as these can present many openings for unexpected challenges. Adapting to these challenges will be key.
This is why working with Market Financial Solutions is so important. With nearly 20 years of lending experience behind us, we know how to react to the difficulties that the property market can present. Unexpected political shifts, economic downturns, or changing sentiment won’t prevent us from trying to find a way forward for our brokers and borrowers.
We’re there for MUFB investors whose projects have been, or are at risk of being stalled. We will aim to find a way forward. Even for those who may have poor credit histories, complicated corporate setups, or CCJs to their name. Call us to get the ball rolling.
[1] https://www.property118.com/landlords-set-to-raise-rents-as-costs-increase/
[2] https://www.telegraph.co.uk/money/property/buy-to-let/brace-eviction-chaos-labour-crackdown-landlords-warned/
[3] https://www.gov.uk/renting-out-a-property
[4] https://www.gov.uk/government/publications/how-to-rent
Disclaimer
Market Financial Solutions are a bridging loan and buy-to-let mortgage provider, not financial advisors. Therefore, Investors are encouraged to seek professional advice. The information in this content is correct at time of writing.