Buy to let mortgage for semi-commercial property

Buy to let mortgage for semi-commercial property

30.08.17 | Written by: Nick Helm

The client
A longstanding client of Mortgages for Business and a successful businessman living in the South East. He operates a small portfolio of buy to let properties via an SPV limited company and runs two separate consultancies –  specialising in accountancy and childcare provision respectively.

The property
A five-storey, mid-terrace building purchased in 2014 for £245k on the high street of a busy commuter town originally consisting of a large flat on four floors above a ground-floor shop. The client had used development finance to split the large flat into three self-contained apartments (2 x 1-bed and 1 x 2-bed) and create a larger communal entrance on the ground floor by reducing the area of the shop.

The redevelopment, which was the first project of its kind for the client, is now complete and has increased the building’s value to £1m.

The tenants
The shop is let on a long lease to tenants who have been trading from the premises for more than eight years at an annual rent of £14,520. They were not hugely affected during the refurbishment works and are happy with the new size and layout of the shop.

The three new apartments are now let on 6-month ASTs. The 1-bed flats rent for £850 pcm each and the 2-bed flat is rented for £1,200 pcm.

The finance required
The client needed to repay the development loan which was nearing the end of its term. He was looking to raise £350k – just 35% loan to value.

The solution
Normally, we would suggest a commercial investment mortgage to finance mixed use properties however, there are a couple of specialist lenders which offer more favourable terms on a buy to let basis if the rental income from the residential element meets the income requirements without the rent from the commercial element playing a part. Yes – this is unusual!

In our client’s case, the rental income from the flats alone was generating £2,900 pcm which was more than double the amount required to meet the criterion.

The client’s two other buy to let mortgages happened to be with one of the lenders we had identified, so we contacted them for an initial discussion, knowing that our client’s impeccable debt servicing record with them would play a part in any lending decision.

When assessing the case, the underwriter requested more detailed information on the client’s complex income structure. So, we worked with him to provide his latest SA302’s, a statement from his accountant detailing his take home salary and information on his trading company, including business contracts and profit.

Happy with the information provided, the lender made an offer, subject to an inspection and valuation of the property.

The terms

Property value:                     £1,000,000 (including commercial unit)       £750,000 (excluding commercial unit)

Loan amount:                       £350,000

LTV:                                          35% (against entire property)                         46.7% (against residential element)

Rate:                                        3.40% fixed for 2 years

Term:                                       25 years interest only

RTI:                                           130% @ 5.5%

Mortgage payment:            £992 pcm

Borrower:                               SPV Ltd Company

Lender arrangement fee:  1.5% of the loan amount (£5,250)

Rental income:                     Total: £4,110 pcm
                                                  3 x flats totalling: £2,900 pcm
                                                  1 x shop: £1,210 pcm (paid quarterly
– excluded from affordability calculations)

Gross yield:                            4.9% pa

Consultant:                            Nick Helm, 01732 471608

This is a highly unusual scenario but it does highlight where our skills and expert knowledge of the lending market can often produce a favourable result. 

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