Granny Flat & Annexe Mortgage Advice
Our mortgage advice service for granny annexes and habitable outbuildings
You might be surprised that some lenders do not look favourably on properties with annexes or outbuildings.
If your mortgage application has been declined, the good news is that most mortgage lenders do look favourably at these properties.
However, lenders differ significantly on what they accept as the intended use of the annexe, be it for your family and friends, a lodger, a tenant on a long-term letting agreement, or for holiday letting.
They also have extensive rules on other factors like whether the outbuilding has separate services or council tax. So, using a competent mortgage broker will help to avoid problematic applications.
If you want to buy a property with an annexe, our typical advice fee is £299 and is only payable upon a binding mortgage offer approval. We are an independent mortgage broker with access to the vast majority of the lenders in the UK.
If you are capital raising to build an annexe, our advice service is usually free of charge, except for self-build mortgages where funds are advanced in stages; see below for more information on self-build.
Why do some lenders object to lending on granny annexes?
Those lenders that refuse outright to lend on these properties are generally concerned by the prospect of repossessing the property and finding there is a tenant with a long-term letting agreement and a legal right to remain at the property.
That could pose many issues for the lender and further financial losses, which they may never recoup.
With 'assured shorthold tenancy agreements' now being suitable for up to three years, there is a real risk they might have to hold a property for years before being able to sell it.
So it's understandable that some lenders outright refuse to consider these properties.
Factors affecting the choice of lenders available
If you are considering building an annexe, there are several considerations to ensure your property remains suitable for any future mortgage and to understand how changes may impact saleability.
Firstly, any outbuilding without the ability to be sublet is likely not considered an annexe.
Washing facilities and a second kitchen usually invoke the lender's policies regarding annexes (a summer house with a shower and toilet is not likely to be an issue with most lenders).
The size of the annexe is probably the primary consideration. The closer the size gets to the footprint of the main building, the fewer lenders will consider it.
At the time of writing, there will be limited lenders for annexes with sizes over 50% of the main building. For such properties, though, we may still be able to help you.
Most lenders are likely suitable where the footprint is less than 20-25% of the original building.
A linked entrance to the original building is also desirable for many lenders. If building an annexe, consider whether an adjoining door is appropriate.
Many lenders will stipulate that an annexe should not have separate services, i.e. gas, electricity and water meters, or council tax account and address. Again, properties that have these issues are something we can likely help you with.
But when building an annexe, you should choose carefully whether to include individual services or separate council tax, as these could significantly impact lender choice when selling the property.
Raising money to build an annexe or habitable outbuilding
If you want to finance the building of a habitable additional space on your property, there is a bewildering array of potentially suitable solutions to raising funds.
If your existing mortgage has an early repayment penalty or is on a competitive rate, a further advance with the current lender or a secured loan may be the best option, with pros and cons for each solution.
For some borrowers, an entirely new remortgage with additional borrowing may be best. We can help you to understand the best cost options and the applicable pitfalls from all the possible solutions.
We can usually arrange a further advance with your existing lender or recommend products from secured loans to an entirely new mortgage. So we can help ensure you get the right solution.
We will also consider whether borrowing against other assets may be more appropriate or even using a personal loan and refinancing the whole property once works are complete to repay the loan.
If your current property has insufficient equity to raise capital for the build, a self-build product may be suitable, which we can also assist with.
Our advice fees differ for self-build mortgages, please see our self-build guide here for further information.
A granny annexe for occupation by a family member or friends
The most widely mortgageable reason for owning an annexe is occupation by your friends or family.
If you are buying or remortgaging a property and this is the current, or intended use, then it's unlikely to be problematic.
You might still find considerations like the footprint of the primary property, the lack of an adjoining door or other policy issues causing some lenders to decline (along with a fair number who will dismiss any annexe).
So, you will still benefit from an experienced mortgage advisor to simplify the process, and we can help you with this.
A granny annexe for occupation by a lodger or a long-term tenant
Things get considerably more complex when your intended use is for any form of letting.
There are still a sizeable number of lenders who are happy to accept one or both of these arrangements, but they will often have a lot of specific criteria.
That includes whether the property should have adjoining access, whether it can include separate meter units for the property, independent council tax and property address, or vehicle access.
Each lender will typically have different rules about the types of tenants that may be acceptable (including whether there can be multiple tenancy agreements), what duration these last for and the type of tenant.
If you need to include income from the rental towards mortgage affordability, this is typically only possible when you own the property already. Historic evidence of the receipt of the payments is necessary for this purpose.
So, it is vital that you ensure that rent payments are via bank transfer, not in cash. Where necessary, you should be completing self-assessment returns. Both for future use to support a mortgage application and to ensure you are not guilty of tax evasion.
Get in touch for help with a mortgage for this purpose.
Mortgages for a granny annexe for holiday-let and Airbnb
There has been considerable change in the market over the last few years to accommodate Airbnb and the growth of holiday letting.
There are now plenty of lenders who will allow the purchase of a residential property, with an annexe, where you intend to let the annexe on Airbnb or via a similar arrangement.
Again though, as per subletting to a lodger or long-term tenant. Most lenders do not allow this, and there is a great variation between those that do in terms of what is acceptable.
There may be limitations regarding the number of weeks the property may be let each year.
All the same intricacies of criteria will exist around the size of the annexe in proportion to the original building, whether it shares access, services and council tax.
So, again, you will benefit from using an experienced mortgage advisor like us to navigate your options and help you find the best deals.