Mortgage for part commercial, part residential building?

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    Mortgage for part commercial, part residential building?

    Hey everyone,

    Unfortunately the flat myself and my girlfriend were about to buy just fell through but we've found another one quite quickly. The issue is it's a 3 storey freehold terraced building that used to be fully residential and 10 years ago got planning consent for the ground floor to be used as a clinic. Since then it's been used as a beauty parlour/nail bar (with a couple of treatment rooms) with a shared entrance with the residential section upstairs. They have unofficially split the upstairs into 2 one bedroom flats which was done about 3 years ago (on the plans it's listed as 1 residential unit). We are obviously aware of the building regs and planning issues surrounding this.

    I've spoken to my bank (HSBC) and they apparently won't lend on it at all because it's commercial and residential on one title (and right now they'll only lend as a commercial mortgage if it's owner occupier). The vendor (who runs the commerical unit) is happy to take a lease for the commercial space on completion so there would be guaranteed rent from that immediately (about £1200/month). And the 2 flats above would rent for about £1000/month each so that would mean a theoretical value of £3200. The price is £500 000.

    Ultimately we'd want to do some work and live in part of it but for the moment we're happy to rent it all out (which probably makes lending easier) but just need to find someone who will lend on it as it is?

    I have spoken to my broker who helped with a few mortgages in the past but wanted to see if anyone knew of anywhere I could go that would be likely to accept this kind of proposition (or any particular brokers it might be worth speaking to)?

    Thanks so much for your help, it's massively appreciated.

    Dave

    #2
    Hi Dave

    I might be able to help on that. I work closely with a commercial specialist and we have placed a number of cases similar to this.

    Send me your email address and/or telephone number I will contact you with more details.

    Thanks

    Phil

    Comment


      #3
      Originally posted by PhilWalsh View Post
      Hi Dave

      I might be able to help on that. I work closely with a commercial specialist and we have placed a number of cases similar to this.

      Send me your email address and/or telephone number I will contact you with more details.

      Thanks

      Phil
      Thanks very much for your reply Phil, i have sent you a private message. And if anyone else has any good ideas then please feel free to let me know, thanks very much!

      Comment


        #4
        Definately can be financed through a commercial provider if it is to be totally let as an investment even though it is on a single title.

        The challenges come in if you intend either now or in the future to live in it yourselves.
        CFA

        Comment


          #5
          Originally posted by cfaproperty View Post
          Definately can be financed through a commercial provider if it is to be totally let as an investment even though it is on a single title.

          The challenges come in if you intend either now or in the future to live in it yourselves.
          Ultimately we'd like to live in it ourselves but we don't need to do that yet. We're happy to buy it as an investment and let it all out, then try and getting planning permission to do whatever work we wanted (including converting the shop to residential if possible). My intention would be (assuming we got planning to convert the shop to resi) to then try and remortgage to someone else (if the current lender won't) on the basis it's all going to be residential.

          Ultimately for the moment i just need good commercial lenders who will lend as it is on the basis it's all going to be rented out. I have been told by a few people it would actually be easier to borrow on it i was going to run the business downstairs and live upstairs but i can't quite see how that would be true.

          If you have any specific suggestions about lenders/broker then they would be greatly appreciated.

          Thanks so much,

          Dave

          Comment


            #6
            The only flexibility owner occupation tends to give is a marginally better LTV with the best investment LTV's being between 70 & 75%.

            The advantage with a fully let proposition is that you have a defined income stream that can be supported by the valuer's copmments, if you owner occupy the commercial portion you will effectively be a 'new start' company , need full financial projections and limit the lender choice to the clearing banks.

            We are commercial brokers.
            CFA

            Comment


              #7
              Originally posted by cfaproperty View Post
              The only flexibility owner occupation tends to give is a marginally better LTV with the best investment LTV's being between 70 & 75%.

              The advantage with a fully let proposition is that you have a defined income stream that can be supported by the valuer's copmments, if you owner occupy the commercial portion you will effectively be a 'new start' company , need full financial projections and limit the lender choice to the clearing banks.

              We are commercial brokers.
              Hi David,

              Thanks for your response, it sounds as though the fully let route would be the easier one which we are happy to do, in which case it would be a commercial unit (which we should be able to get a 6 month lease on from the vendor at about £1200/month so it's earning immediately) and a residential unit upstairs which has been unofficially converted into 2 flats and could rent for about £1000 each in their current state.

              If you feel this is something you could help with then i'd be very interested in talking with you directly, do you have contact details so i can get in touch directly?

              Thanks so much,

              Dave

              Comment


                #8
                Hi Dave

                Commercial lenders look for more robust tenacy arrangements for the commercial element and a short term lease or licence usually means that the ultimate LTV will be a lot lower.

                As far as the tenant is concerned I would be looking for a minimum commitment from them of 5yrs, and the longer the lease the longer you can take the facilty over.

                Do bear in mind also interest only commercial is as rare as rocking horse manure and repayment serviceability (not interest cover) will have to be proven.
                CFA

                Comment


                  #9
                  Originally posted by cfaproperty View Post
                  Hi Dave

                  Commercial lenders look for more robust tenacy arrangements for the commercial element and a short term lease or licence usually means that the ultimate LTV will be a lot lower.

                  As far as the tenant is concerned I would be looking for a minimum commitment from them of 5yrs, and the longer the lease the longer you can take the facilty over.

                  Do bear in mind also interest only commercial is as rare as rocking horse manure and repayment serviceability (not interest cover) will have to be proven.
                  Thank you very much for your advice. The issue with the commercial unit is that we actually want to try and get planning permission to turn this into a residential flat (i have spoken to the planners at length and this seems very likely to be approved). As a result i was thinking of getting her to sign a 6 month lease as this would give us income in the meantime and give us time to submit the app and get a decision. Obviously if it's refused (which it shouldn't be) we can grant her a longer lease or rent it to someone else, otherwise we'd then want to do the conversion (which i appreciate we may then have to remortgage for). As a result we wouldn't want a 5 year lease for her as this would prevent us from doing the conversion.

                  This is obviously rather complicated as we're buying it as a commercial but want to convert it so whilst we need the commercial return to look good to the bank we don't want to tie ourselves in for ages (but my understanding is borrowing on the basis of conversion without PP is even more of a minefield right now) which is why i thought it probably best to ignore that element for the moment (as once we own it and have planning permission it should be much easier to borrow against).

                  Do you have any suggestions as to the best way forward given this is the situation?

                  Thanks so much for your help,

                  Dave

                  Comment

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