Finance For Splitting Land Titles

If you’re looking to maximise the value of property investment, a popular strategy is to split the land title of a property. Though the practice is mostly associated with multi-unit freehold blocks, or MUFBs, splitting land titles can be done to any freehold property that is covered by a single title deed. If successful, the freehold can be divided into multiple deeds where the investor tends to keep the freehold and lease the new splits as leaseholds. 

Splitting land titles for investment purposes requires significant capital – which usually depends on securing lender support via a bridging loan or other form of finance. You’ll need capital to fund the initial property acquisition and for any further development work needed to split the property into individual leasehold units. 

Rangewell can help investors interested in splitting land titles. We can work with you at an early stage to secure a multi-unit freehold block mortgage which you can later split, or help investors who already own an MUFB and want to convert it into smaller leaseholds. We act as your partner, negotiating with lenders on your behalf to secure loans that suit your goals. 

As experts in property finance, we can help you at any stage of the process – get in touch today to learn more.

Why is splitting a land title a viable strategy? 

Splitting an MUFB into multiple leaseholds is a way to maximise the value of the property – but it doesn’t actually ‘add’ value unless you invest in refurbishment or conversions. Instead, the process is about avoiding the ‘block discount’ that is applied by valuers and lenders to large freehold blocks. This discount usually means a seller’s property is valued at 10-20% less than the actual bricks and mortar value. 

Some investors choose to refurbish or renovate parts of the freehold to create more attractive leasehold flats which can be sold or let. Selling the leaseholds but retaining the overall freehold does mean you are responsible for maintaining communal areas etc, but also means you’ll have more control over the building’s future and additional sources of income even after the sale.  

The ultimate benefit of splitting titles is in profitability. If planned correctly, you can raise finance to purchase a large freehold block and then split the titles, which means any valuation will no longer use a ‘block discount’ – so you’ll be able to sell for profit or refinance to unluck the equity gained by the increased value. 

If you’re undecided about whether to sell or let your new split property, you’ll also enjoy greater flexibility from the splitting across each unit, giving you more flexibility over how you manage your property portfolio. If you wanted to liquidate some of your properties to raise cash, for example, it would be far easier to do so when you’d split a MUFB into multiple leaseholds – allowing you to sell off a few and continue operating the others as a landlord. 

Key considerations before choosing to split a title

Aside from raising the appropriate levels of finance, you’ll also need to consider the following obligations and extra steps involved in the process: 

• Property management duties: if splitting a property into multiple leaseholds, you’ll need to create a property management company in order to satisfy lender requirements. If you plan to retain the freehold, you’ll need to continue operating the management company.
• Existing mortgages: if you have an existing mortgage over the property you intend to split, you’ll need to seek formal consent or discharge from the lender before you can even start to file for the split. 
• Property refurbishment costs: residential flats are subject to minimum standards and sizes in the UK. If you’re splitting a MUFB, you’ll need to assess the costs associated with converting or refurbishing parts of the property to make each leasehold unit meet these guidelines. 
• Legality and delays: splitting titles is a complex process that will require you to appoint a seasoned solicitor, submit detailed plans to the Land Registry and then follow up regularly to progress your application. It would be wise to budget for additional legal fees and to allow for extended delays as you wait for Land Registry’s decision. 
• Taxes: splitting land titles changes the type of tax you may have to pay when purchasing or disposing of property. Consult with a tax expert to determine whether you’ll need to pay Stamp Duty Land Tax, Capital Gains tax or any others. 

Loans for land title splitting

The first step in splitting land titles is identifying a suitable building, which may be an old care home or larger property that can then be split into multiple leaseholds – or a multi-unit freehold block that is already suitable for splitting. 

Purchasing a building to split the title

Unless you have the cash to purchase a property in full, you’ll need a lender to help you acquire it. Typically, lenders will only offer certain LTVs depending on your background, the property itself and your plans for it. You’ll only take a loan for the block discount value of the property so you’re able to then refinance at a later date if you can successfully split the title and improve the value (thereby creating equity). 

You’ll need a deposit for your purchase, which will vary depending on what type of loan you can secure. Mortgages tend to require a higher deposit and may have restrictions over how you treat the property once purchased – so they might not be the right choice for splitting investment.

Bridging loans are a great way to pursue a land title split deal. They generally offer better LTV ratios, meaning you’ll need less of a deposit. Though the repayments are higher in a bridging loan compared to a mortgage, you will quickly aim to split the land title and then either sell the units or refinance the bridge into longer-term mortgages. 

Renovations or conversion finance

If you’ve already bought a property and need to renovate, or intend to buy one and convert it, you’ll need cash to fund the works. In some cases, you can apply to a lender to fund both the acquisition of a property and additional cash for further works, or simply apply for a separate facility. 

Rangewell can help you make sense of your options and help you choose the right loan. Once works are completed, you can split the title and sell the leaseholds to maximise the value of your investment. 

Refinancing after splitting land titles

One of the best ways to harness the value of a land title split is to refinance from a more expensive loan based on the initial ‘block discount’ value into a new facility agreed against the bricks-and-mortar value of the split titles. 

Refinancing relies on finding a lender willing to take on your existing debt and agree new terms. Speak to Rangewell and we’ll help you identify the right lenders and negotiate the agreement on your behalf. 

Purchasing property for investment? Rangewell can help you with all aspects of your financing requirements, from arranging long-term mortgages to short-term bridge loans for capitalising on property auctions etc.