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  • Mortgages & Finance

    High street retail unit and separate flat

    I am looking at a high street freehold, retail unit tenanted 5 year lease, the building also has a flat above, separate entrance rented out on and AST, not leased, part of the freehold. Gross yield is good for this area in the south 10%. I can purchase outright through my Ltd. My question is how easy is it to mortgage later to release equity, I have other income ( employed full time HR tax payer) and a residential property which I live in

    i don’t normally touch commercial mixed so wondering what the finance limitations are

    any info would be much appreciated before I start DD

    thanks,

    rdcken

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    You are right to ask this question. Lenders are usually split by residential or commercial property and regulated or non regulated markets, A mixed use property is a challenge is the residential part of 40%+ of the property as this means it’s considered residential and possibly a regulated mortgage - and they don’t like commercial retail units. If the lender wanted to exercise security then they put it 5o their usual team who deal with commercial or residential so this is the problem - this property cannot be allocated to their usual team.

    My suggested is buy the freehold and separately buy a long leasehold interest in the flat with all the usual common parts and service charge matters. This gives you dseparate titles and more lenders to choose from.

    We are doing this for a client at the moment with very similar circumstances. Without splitting title there were very few lenders and the loan pricing was higher. Now it’s a conventional residential buy to let (say 70% LTV in London in current market) and a retail shop (say 59-60% LTV). The blend of pricing is a much better option and of course it also means all your eggs are not with the same lender.

    You need to do this on acquisition not afterwards as you cannot create a leasehold interest with yourself.

    Best of luck.
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    Chartered Accountant, Tax Advisor and Mortgage broker

    (and BTL portfolio owner)

    stuart@johnsonsca.com

    02039077022


    I can't offer any advice on mortgages but I have a little insight on mixed use and freehold flats.

    I have purchased a mixed use property through my limited company and will eventually hold the leasehold to the flat in my personal name with the ltd being the freeholder which will include the commercial unit. This "normalises" the residential element ( I need to be an owner occupier and am not concerned with mortgage criteria).

    I have recently viewed 3 freehold flats (not common*), none of which are mortgageable due to their legal status and potentially have a very good ROI. As far as I'm aware they could be "normalised" for lending purposes by creating a leasehold.

    * The properties have been split into multiple units with the ground floor flat retained with the freehold and leaseholds created for the other units. I don't know why they have been created this way, as far as I'm aware it is usual to create a leasehold for each unit and a freehold for the building.

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    A commercial lender wont have any issue with this, perhaps start by speaking to your existing bank for a referral to their commercial team. with a first commercial deal they may only want to go to 60 or 65% LTV and the rate will be a little higher but both of these points are negotiable, especially the rate.

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    Phil Stewardson.

    Stewardson Properties.

    Stewardson Developments Ltd.

    Burson Land Ltd. & Jennings & Gilchreaste Ltd.

    http://www.stewardson.co.uk

    Follow me on twitter - @philstewardson


    Stuart, Gary, Phil,
    Thank you for your replies it’s very much appreciated, the experience of the contributors on here is invaluable especially on something that’s a bit different to my normal strategy and this route would compliment it nicely.
    Again thanks
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    Whilst the number of lenders offering mortgage products in this space is fewer than BTL residential, there are options and 70% LTV should be readily achievable. The rates are higher than for BTL, as the risk is perceived to be higher.

    Stuart makes an interesting point regarding splitting the title. This would certainly work, but you would have to weigh up the additional costs of: paying a solicitor to split the title and put a long lease in place v. the higher interest rates applied to commercial mortgages. You could theoretically obtain 70% LTV as it is and, in my opinion, this is better done as a purchase than a remortgage (I'm sure some will disagree with this!).

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