Area: Northampton
Amount raised: £450k
Listen to this case study here.
Did you know that nearly 1 in 5 mortgage applications for semi-commercial properties are rejected? The reason for this is that mortgage lenders are increasingly wary of lending money for these properties due to the proximity of commercial activity.
A surveyor will determine the proximity of commercial activity and assess the impact on the property’s resale value. For example, a surveyor may determine that the proximity of a noisy bar or restaurant could make it difficult to sell the property in the future. The surveyor will also consider the type of commercial activity and the noise levels when making their decision.
If you are considering buying a residential property with commercial activity nearby, it is important to be aware of the potential impact on your mortgage application. You should also consult with a mortgage lender to discuss your specific circumstances.
The scenario
We were approached by a client who wanted to buy a semi-commercial property. The property was internally split, with residential space on the rear and first floors and commercial space on the ground floor. The client wanted to live in the residential portion of the building but needed to complete the transaction in one purchase.
While regulations state that a property with more than 40% residential space is considered a regulated residential mortgage, most lenders who offer residential mortgage finance would not approve a loan for a semi-commercial property. This is because semi-commercial properties are considered to be riskier investments than residential properties, and lenders may be concerned about the impact of having a commercial tenant on the property’s value. Additionally, lenders may be reluctant to lend money to a client who intends to live in part of the property and rent out the other part, as this could make it more difficult for the client to repay the loan if the tenant defaults.
The client would also not be able to use a commercial lender, as they only offer finance for unregulated transactions. However, the client’s intention to reside in the property would not qualify for this type of financing.
The solution
We are no strangers to unique situations. We are happy to help clients find suitable solutions.
We spoke to a well-known lender and their surveyor to discuss different arrangements in order to allow us to proceed. The reason we wanted to reach a solution with a highstreet lender was because this would be a much more cost-effective solution for the client instead of having to use an expensive specialist.
We were able to agree a solution which involved the purchase of the residential section on a newly created freehold title and the client would simultaneously purchase the commercial section on a newly created leasehold title. This was a solution the lender was comfortable with and was acceptable to the client. By spending the time to discuss the situation with the lender and coming up with a solution they accepted we were able to complete a semi-commercial purchase on some of the lowest rates available on the market.
A title split can often be a solution for some complex arrangements. The main concern for a lender is their immediate security, the surrounding titles are then of secondary concern. Other scenarios where this can be used involves titles with multiple dwellings, high acreage properties or self-build properties.
By taking the time to understand the lender’s requirements and working with them to find a solution, it is possible to overcome problems with the valuation of a property. This can help you to get the mortgage you need and purchase the property you want.
If you are encountering issues with your mortgage application or are looking for a specialist opinion. Contact Orton Financial today.