Getting a Mortgage on a Property With an Annex

Do you know how to get the right funding for an annex? Read on to find out more

Firstly, are you looking to mortgage a property with an annex?

Home Property Types Getting A Mortgage On A Property With An Annex

Author: Pete Mugleston

Mortgage Advisor, MD

Reviewer: Nathan Porter

Independent Mortgage Advisor

Updated: March 18, 2024

How we reviewed this article:

Our experts continuously monitor changes in the financial space and work closely with qualified mortgage advisors for factual verification.

March 18, 2024

An annex can be an efficient way to add extra space to your home or provide long-term accommodation for elderly relatives, without going through the expense and upheaval of moving to a larger property.

In this article we’ll look at what defines an annex, the different ways to fund one, and how to find the right type of finance for your needs.

Can you get a mortgage on a house with an annex?

Yes, if you’re looking to purchase a house with an annex attached, there are mortgage lenders who will be happy to help, although each has their own very specific criteria, so it will depend on what you intend to use the annex for, as well as your personal circumstances.

If you’re looking to build an annex on your existing home, the situation will be slightly different, as, whilst you may well need to find financing for the project, this won’t necessarily be with a mortgage. We’ll look into the various finance options later in the article.

What exactly is an annex?

An annex, which is sometimes referred to as a ‘granny flat’ or ‘granny annex’ due to their traditional purpose of housing elderly relatives, is additional space added to a property, which is still classed as part of the same dwelling. Whilst using an annex as a granny flat is still very common today, there are a wide range of other uses, such as home offices, gyms, and more recently, holiday lets.

Unlike an extension, an annex does not need to be attached to the main property, and is often in a purpose built or converted ancillary building. It is self-contained, but cannot have an individual address and the deeds will still class the property as a single dwelling.

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Are there any specific requirements for this property type?

This will depend on the intended use of the annex, as well as the construction type and facilities contained within it.

Those looking to buy a property with an annex will need to consider:

Construction type

There are a number of options in terms of materials that may have  been used for construction, such as timber, brick, or even glass and therefore lenders may consider an annex to be non-standard construction. Often, only specialist lenders will accommodate this type of property.

Purpose of annex

You might also want to consider whether the purpose of the annex matches your needs. For example, if it’s going to be used for older relatives, wider doorways, step-free access and non-slip flooring are important.

If you’re planning to use it as a holiday let, on the other hand, the greatest profits are typically achieved with a high-end luxury finish. It’s also a good idea to check the property deeds before you buy if this is your goal, as restrictive caveats sometimes ban any commercial activity.

If you’re looking to add an annex to your existing property, you’ll also need to consider:

Planning Permission

It may be possible to add an extension or annex to your home under permitted development rights. If the annex is a completely separate self-contained building, however, it’s more likely that you’ll need to seek planning permission. In either case, a certificate of lawfulness should be obtained from the local authority before works begin.

Deed restrictions

It’s a good idea to check your property deeds for any restrictive caveats or covenants that you may fall foul of by building an annex. For example, there may be a need to obtain consent from neighbours. If your property is leasehold, you will also likely need authorisation from the land owner.

Annex type

You can use all sorts of materials for your build, including eco friendly options, however, matching the annex to the property may maximise property value if you ever decided to sell up. It’s also possible to buy prefabricated materials or complete flatpack buildings for convenience.

If you’re adding an annex to provide the necessary space for elderly relatives, or even grown up children, there’s a chance that you might want the option to move the annex with you, should you ever relocate. In this case, it’s possible to purchase a purpose-built mobile home style annex, which can be transported by road.

Under the Caravan Act, this type of annex may not require planning permission, however, it’s recommended that a certificate of lawfulness is still sought. Your conveyancer will be best placed to advise you on this.

How a broker can help you get approved for mortgage on a property with an annex

Whether you’re looking to purchase a home with an existing annex, or add an annex to your home, sourcing the suitable finance can be a complex affair. A broker with prior knowledge in this area will be able to guide you through the entire process, from reviewing your building plans, through to recommending the right type of finance and finding you a lender.

The brokers we work with know which lenders will consider properties with an annex, as well as the criteria you’ll need to meet in each case. This allows them to tailor their advice to you, whether you plan to let out the property on a long term basis, or need to know how much deposit each lender requires from borrowers in your circumstances.

To save yourself the time and stress of attempting to tackle this alone, simply get in touch and we’ll pair you with an expert broker who has specific experience of helping clients fund annex purchases and builds.

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Financing an annex

The type of finance you’ll need for a property with an annex will differ depending on whether you’re planning to buy a property with an existing annex or to build one. In some cases, a mortgage may not be the best type of finance at all, it depends on a number of factors.

A significant number of annexes are still used to house elderly parents with their children to enable easier care provision. This can be much easier to accomplish if both parties have an existing home to sell, as the proceeds may go a long way towards, or completely fund the new purchase.

If additional finance is needed, buyers often club together with their parents to purchase a home that’s suitable for both of their needs.

Mortgages that you could potentially use to fund the purchase of a home with an annex include:

  • A joint mortgage for 3-4 borrowers – Some lenders allow for 3-4 borrowers to be named on the deeds, however, often only the 2 highest incomes will be considered. There are some lenders who will look at all 3-4 though. The legal implications of sharing ownership of the annex with relatives will need consideration and you’ll need to agree whether they’re classed as a joint tenant (they would own equal shares of the property), or a tenant in common, (property is owned jointly, but shares needn’t be equal). These options also vary in terms of how ownership is divided in the event that any of the joint owners pass away. Your conveyancer will be best placed to advise you on this.
    It can be more difficult to find a lender if some of the applicants are beyond retirement age, but there are certainly lenders that will consider older borrowers.
  • A standard residential mortgage – If you plan to buy and own the entire property, and simply accommodate relatives as lodgers, then this could be an ideal option. If affordable, this option should be the easiest in terms of division of financial responsibility and ownership..

Funding the addition of an annex to your existing home

Whether you’re constructing from scratch or buying a ready-made unit can affect the type of finance suited to your needs, as well as your personal circumstances.

Options to consider are:

  • Self-build mortgage It’s possible to get this type of mortgage for certain annex projects, however, there are fewer lenders in this niche, as many will only fund entire dwellings, and an annex would only be considered a partial interest in the property, which leaves them vulnerable to unauthorised tenant occupation, which would make repossession very difficult, if it ever became necessary.
  • Remortgage to release equity This is a popular option for those who either own their home outright, or have substantial equity in it.
    There may be reluctance from certain lenders, as historically, putting an annex on your property would reduce the potential resale value. Nowadays, however, there is considerable demand for this type of property, and there are plenty of lenders that would offer a remortgage for this purpose.
  • Bridging Loan If you’re unable to qualify for a self-build, or you don’t have enough equity in your home for a remortgage, then a bridging loan could be the answer – particularly if you need the funds quickly. Bridging lenders are typically more flexible about what the funds can be used for. They may also accept other assets if equity or a cash deposit are not an option.

What type of mortgage do you need to rent out your annex?

If you intend to let out the annex as a separate self-contained residence, there will be fewer lenders available to you than if you’re buying purely for residential purposes. In many cases a person renting your annex will be considered a lodger, rather than a tenant, so you should ensure you obtain the correct planning consent for a rentable space. AirBnB mortgages can have different terms to a standard buy to let, so it’s important to fully explain how you intend to let the property.

There are lenders that will provide buy to let mortgages, however, it’s important that they are aware of your intention to let out the annex from the beginning, as they often have very specific criteria, for example:

  • Some lenders will not allow AirBnB lettings specifically
  • Some lenders will not allow any form of holiday letting
  • Others only allow holiday lets, and no longer term tenancies
  • There may be a requirement that a minimum percentage of the home is occupied by the buyer, this ranges from 40-60%, depending on the lender

It’s also important to realize that the annex cannot be sold off as a separate property, as it will share the address and deeds with the main residence.

Get matched with a broker who specialises in annex mortgages

An annex can be an excellent solution to housing your dependents without compromising on space or privacy, your home office needs, or even a way to earn extra income. Obtaining the right finance for this type of project can be difficult and complicated, but don’t let that deter you, let us match you with an expert that can simplify the whole process for you!

To take advantage of our free broker matching service, call today on 0808 189 2301 or make an enquiry and we’ll put you in touch with an adviser with a wealth of experience in this niche.

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Although there’s a chance that an annex will narrow down your field of prospective buyers, for the right audience, you could potentially add 20-30% onto the sale price of your property.

As well as the additional space, the potential to benefit from MDR (Multiple Dwelling Relief) is attractive to many prospective buyers. This can apply if an annex is used exclusively for relatives to live in, and significantly reduces the amount of stamp duty payable. There’s also the potential for those relatives residing in the annex to receive a reduction of up to 50% in council tax, given that it shares the main address.

An annex cannot be a separate dwelling, and therefore can only occupy one household. This means that if you let out the property for profit, it can no longer be considered an annex. If you did not originally intend to use the annex as a separate dwelling, it’s important that you apply for a change of use prior to doing so.

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About the author

Pete, an expert in all things mortgages, cut his teeth right in the middle of the credit crunch. With plenty of people needing help and few mortgage providers lending, Pete found great success in going the extra mile to find mortgages for people whom many others considered lost causes. The experience he gained, coupled with his love of helping people reach their goals, led him to establish Online Mortgage Advisor, with one clear vision – to help as many customers as possible get the right advice, regardless of need or background.

Pete’s presence in the industry as the ‘go-to’ for specialist finance continues to grow, and he is regularly cited in and writes for both local and national press, as well as trade publications, with a regular column in Mortgage Introducer and being the exclusive mortgage expert for LOVEMoney. Pete also writes for Online Mortgage Advisor of course!

Read more about Pete

Pete Mugleston

Mortgage Advisor, MD

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