A Mortgage Guide For Buying a House with an Annexe

If you’ve ever considered buying a property with an annex, you’ve probably got a lot of questions. Whether it’s to keep family members close or to generate some extra income, an annex can be a great addition to a home. 

But, as you might have guessed, there’s a bit more to it than just finding the right property. 

Mortgages, Stamp Duty, and a lot of other financial bits and bobs come into play. 

But don’t worry—this guide will take you through everything you need to know, in a straightforward and friendly way.

What is an Annex?

An annex is like a mini-home attached to or within your main house. 

You might hear it called a ‘granny flat’ because it’s often used to accommodate elderly relatives who need a little extra support. 

But don’t let the name fool you—annexes can also serve as offices, guest spaces, or even rental units. 

They’re fully self-contained, meaning they usually have their own kitchen, bathroom, and separate entrance. 

Think of it as an extension, but with all the facilities needed for independent living. 

How Does It Differ from Other Property Extensions?

Unlike a regular extension (say, adding an extra bedroom or a bigger kitchen), an annex is designed to be its own living space. 

It has everything you need to live separately—cooking facilities, a bathroom, and often a bit of a sitting area too. 

Regular extensions add space to your main house, while an annex adds a separate living area. This difference plays a big role when it comes to mortgages and taxes, so it’s good to know the distinction.

Can You Get a Mortgage for a House with an Annex?

Yes, you can absolutely get a mortgage for a house with an annex. However, it can be a bit more complicated than a standard mortgage. 

Some lenders may view it as a multi-unit property, especially if the annex is self-contained. Others might see it as part of the main residence. 

This means that the mortgage options available to you could vary, depending on the lender’s criteria and the purpose of the annex.

 But don’t worry—there are plenty of mortgage options out there, so finding the right one is just a matter of shopping around a bit.

How Do You Qualify for a Mortgage For Property With Annex?

When it comes to qualifying for a mortgage for a property with an annex, lenders will want to know all the usual details about your finances. 

But there are also some specific factors that they’ll consider for properties with annexes. 

Here’s what they generally look at:

• A good credit score, showing you manage your debts well.
• Stable employment and a consistent income stream.
• Debt-to-income ratio (DTI): Lenders want to see that your monthly debts aren’t too high compared to your income.
• Loan-to-value ratio (LTV): The amount you want to borrow compared to the property’s value. A lower LTV means lower risk for the lender.
• Property valuation: The lender will want to know that the property, including the annex, is worth the amount you’re borrowing.
• Specific annex features: Whether the annex is classified as a multi-unit dwelling or a ‘granny flat’ can impact eligibility.
• Rental plans: If you’re planning to rent out the annex, lenders may include potential rental income in their affordability calculations.
• Deposit size: A larger deposit can improve your chances of being approved.

How the Annex’s Purpose Affects Mortgage Choices

The purpose of the annex will have a big impact on your mortgage choices. Are you planning to rent it out, or is it for a family member? 

The answer to this question will determine how lenders view the annex and which mortgage products are available to you. 

Let’s break it down a bit further.

Renting out the annex (long-term, short-term, holiday let)

If you’re planning on renting out your annex, lenders will likely view this as an investment property. 

It’s important to be upfront about this because some lenders offer different products for buy-to-let properties compared to standard residential mortgages.

Plus, the potential rental income might even help you qualify for a larger mortgage.

For holiday lets or short-term rentals (think Airbnb), things can get a little trickier. 

Not all lenders are happy to provide mortgages for properties intended for short-term lettings, so it’s worth discussing this with a mortgage broker to understand your options.

For family accommodation (e.g., elderly relatives)

If the annex is for family members, like elderly parents or grown-up children, then the lender is more likely to treat the mortgage as a standard residential loan. 

This means you’re not running a business or making a profit, which is often simpler when it comes to getting mortgage approval.

How you plan to use the annex will decide how lenders classify the property and what mortgage options they can offer.

If the annex is for family, it’s usually seen as part of the main home. 

If you rent it out, it might be classed as a separate unit, which could reduce the number of lenders interested. 

So, it’s important to be clear about your plans from the start.

Stamp Duty Land Tax (SDLT) for Homes with Annexes

Stamp Duty Land Tax (SDLT) can be a bit of a headache when buying a house with an annex. The SDLT you pay could be increased by a 3% surcharge if the annex is deemed a separate dwelling. 

To avoid this surcharge, the main house must be worth at least two-thirds of the overall transaction value, and the annex must not be completely self-contained. 

Otherwise, you could find yourself paying more in SDLT.

There is also the possibility of applying for Multiple Dwellings Relief (MDR), which can reduce the SDLT bill. 

But, it’s quite specific—the annex needs to meet certain criteria, such as having its own facilities for living, cooking, and sanitation.

Alternatives Available to Buy, Build, or Add an Annex

If you’re thinking of adding an annex to your current property, you’ve got a few options. 

You could build from scratch, which requires planning permission and some good patience. Or, you could go for a prefabricated annex—kind of like a posh garden shed, but way better. 

You could also consider remortgaging your existing property to release funds for the build. 

Alternatively, bridging loans or second charge mortgages might be suitable if you need cash quickly.

Things To Consider When Renting Out Your Annex

Renting out your annex can be a great way to earn some extra cash, but there are a few things to consider. 

First, you’ll need to check if you have the right permissions. This could mean anything from getting planning permission to checking with your mortgage lender. 

Not all lenders are happy for annexes to be rented out, especially if they’re going to be used as short-term holiday lets.

You’ll also need to think about the tax implications. Any rental income you make will be subject to income tax, and you might also need to pay business rates instead of council tax, depending on the setup. 

On top of that, you’ll want to make sure your annex is compliant with health and safety regulations, especially if renting it out as a holiday let. It sounds like a lot, but once it’s all sorted, it could be a nice little earner!

How To Get a Mortgage?

The best way to get a mortgage for a house with an annex is to start by doing a bit of research. 

Look for lenders who specifically mention annexes or multi-unit properties. 

It’s also worth speaking to a mortgage broker, especially one with experience in this area, as they can match you with a lender who understands your needs and is more likely to approve your mortgage.

The Pros and Cons of Buying a House with an Annex

Pros:

• Multi-use space. Great for elderly relatives, guests, or even as a rental for extra income.
• Added property value. A well-built annex can increase your home’s value, often by 20-30%.
• Extra flexibility. You can adapt the annex for different uses over time—office, gym, studio, you name it!

Cons:

• Complex financing. Getting a mortgage for a house with an annex can be a bit more challenging.
• SDLT implications. You might have to pay extra SDLT if the annex is classified as a separate dwelling.
• Running costs. Maintaining an annex can add to your overall household expenses, especially if it’s being rented out.

The Bottom Line

Buying a house with an annex can be a fantastic opportunity—whether it’s for keeping family close or making some extra income. 

Just be aware that it can be a bit more complicated than your typical property purchase. 

With the right lender and a good broker by your side, you’ll be well on your way to making it happen. 

Plus, if it means your parents or your in-laws have their own space and you have yours.

Get in touch with us today and we’ll connect you with a qualified mortgage broker who can secure the best deal for your property.