Commercial investment mortgage in 6 weeks on Brighton shop with flats above

Commercial investment mortgage in 6 weeks on Brighton shop with flats above

28.03.17 | Written by: Paul Keddy

We were approached by a broker whose clients, a married couple, needed help securing a commercial investment mortgage to buy a freehold, ground floor retail unit in Brighton.

The couple are experienced landlords with a mixed portfolio of both residential and commercial properties. The husband is also an accountant and in his opinion it made sense to make the purchase via joint mortgage application in he and his wife’s personal names.

On viewing the retail unit, they believed it had potential for good capital growth. Further it is tenanted by a well-known hair salon chain, on a sound covenant (five-year FRI lease with no break clause). The actual location is also popular with shoppers which should mean there will always be a strong demand for the property.

However, it was thought that the five flats above the salon were owned on a separate freehold title. When two freehold properties overlap vertically like this, it is referred to as a “flying freehold” which can cause complications regarding rights of support and access to/from the other property. Many lenders view flying freeholds as problematic, so the broker asked for our help as we have considerable experience of successfully negotiating finance in these cases.

When reviewing the case, it also transpired that the clients wanted to be able to reduce their borrowing in chunks without penalty, and were hoping for a fast turnaround as they were under time pressure from the vendor to complete the sale.

The lender we approached has an active commercial finance department with a good understanding flying freeholds and a fast processing track record. In just six weeks, we arranged a facility that allowed the clients to reduce the capital owed by making mortgage overpayments of up to 50% in any 12-month period without incurring Early Repayment Charges.

Just before contracts were due to be exchanged, the clients’ solicitor discovered that the flats were in fact subject to long leases, and the entire building was on the single freehold title which was being purchased. Both the clients and the lender were happy with this arrangement and the discovery did not alter the terms offered.

Property value: £1,050,000

Loan amount: £779,625

LTV: 74%

Rate: Bank Rate (currently 0.25%) + 3.69%

Term: 19 years' capital & interest

Mortgage payment: £4,863 pcm

Lender arrangement fee: 1.5% (£11,550)

Rental income: £5,300 pcm

Gross yield: 6.1% pa

Consultant: Paul Keddy, 01732 471655

ANY PROPERTY USED AS SECURITY, WHICH MAY INCLUDE YOUR HOME, MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.