Almas Uddin
Founder and Mortgage Advisor
09 Apr 2020
Mixed-Use Properties: Semi Commercial Mortgages
Mixed-use properties relate to premises with both a residential and commercial element, for example, retail properties with a residential flat above. Whilst both parts of the property can be let, together or separately, is it not possible to secure such an investment through a buy-to-let mortgage product.
This type of investment is popular in property acquisitions, since they offer a blended mixture of revenue streams through rental income, and can provide returns to channel into expanding a property portfolio.
There are benefits to be found in reducing the Stamp Duty payable since dual-use properties attract non-residential rates, and the surcharge of 3% levied on second residential properties does not apply.
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Purchase Value
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Duty payable on residential property
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Duty payable plus 3% surcharge on a second residential property
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Duty payable on a non-residential investment
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£200,000
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£1,500
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£7,500
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£1,000
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£300,000
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£5,000
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£14,000
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£4,500
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|
£500,000
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£15,000
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£30,000
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£15,500
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|
£600,000
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£20,000
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£38,000
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£19,500
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Although a proportion of the property is residential, this type of investment must be financed with a commercial mortgage rather than through a buy-to-let product.
To identify the most attractive commercial mortgage rate, we recommend using an experienced broker who will be able to identify the best products available for you dependant on your experience of the property investment market.
Revolution Finance Brokers also offer a service to assist brokers who are not experienced within the commercial mortgage market, whereby our expert team will be able to secure the ideal rates and terms for your client, with whom you communicate directly.
Illustration
A freehold investment property at a cost value of £650,000 including:
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A retail unit with A1 permitted use with five years remaining of a ten-year lease term at £18,000 per annum
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A maisonette located above the retail unit, with 3-bedrooms and let for £17,000 per annum
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Total annual yield for the property (annual rent against property value) of 5.4%
Anticipated Finance
For an experienced investor with demonstrable income security, indicative rates and terms could be:
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Interest starting at 2.5% over base rate
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A loan-to-value ratio of a maximum of 75%
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Mortgage lending available from £200,000-£487,500
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Terms offered between two and thirty years
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Options to choose between capital repayment, interest-only repayment, or a mixture of the two
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Arrangement fees of between 0.75-2.0% of the loan value
Starting your Application
Given the individual nature of commercial investments, each application is considered alongside the applicable circumstances of the investor, and nature of the acquisition. We recommend having all of the supporting information to hand to support an expedited application process, including proof of income to be able to demonstrate affordability.
Initially, Revolution Finance Brokers would seek to achieve an Agreement in Principle (AIP), which is an initial offering to allow you to assess the terms and rates, and compare to other potential products.
Once you have accepted an AIP, any additional information and supporting documents will need to be submitted. Whilst requirements vary between lenders, these generally will include:
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Bank statements for yourself and your business of at least six months
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Records to show your assets and liabilities
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Confirmation of how you are funding the deposit payment
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Particulars of your lease and/or rental agreements
To ensure a smooth process, an independent valuation by an appointed surveyor can be conducted whilst final documents are submitted, since it can take around two weeks for a site visit and a valuation report to be prepared. This valuation considers:
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The market value of the property in consideration of the rental income
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The market value of the property should it be a vacant possession scenario
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The achievable rent at market value for each element of the property
Market value is reliant on the leases and rental agreements in place, so it is crucial to have details of the tenancy agreements to hand before the valuation to support a fair valuation report.
Once a valuation report has been finalised, and all documentation collated, the lender will move on to the underwriting stage of the process at which point our team will liaise between you and the lender to negotiate the best terms, and resolve any pending queries. A formal mortgage offer will then be released for your approval.
To support our clients throughout the process, one of the Revolution Finance Brokers will act as your direct point of contact to oversee the completion process.
More Information
For more support, information and advice, please give the team a call or drop us an email. We would be more than happy to help!
0330 304 3040
[email protected]
Contact us now to discuss your personal options, Revolution Finance Brokers specialise in commercial and residential finance in Essex, Kent, London and Hertfordshire.
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