Solicitor who originally advised has not read the Council of Mortgage Lender's handbook - the relevant section with Bank of Scotland's views on the point in question is as follows:
However, there does seem to be confusion amongst solicitors etc on the point, and this does regrettably mean that you may end up creating a lease later in order to sell the flat without causing this unnecessary confusion, in favour of technically different people as explained by Jeffrey:
Other freehold arrangements
5.5.3 Unless we indicate to the contrary (see part 2), we have no objection to a security which comprises a building converted into not more than four flats where the borrower occupies one of those flats and the borrower or another flat owner also owns the freehold of the building and the other flats are subject to long leases.
5.5.3- Do you lend in these circumstances?
(NB: f/r must be in different permutation of names from leasehold, e.g. put f/r into sole name so he/she then grants lease to joint names).
As a conveyancing solicitor I believe the information given in the post to be useful (provided it relates to property in England & Wales) but I accept no liability except to fee-paying clients.