The ins and outs of placing semi-commercial cases

By Kevin Cooke, managing director at FinSec Limited

While many semi-commercial properties will have split titles for their respective residential and commercial elements, there are still many that are held on one title. There’s a distinct lack of lenders who will accept these property types and therefore refinancing is even more difficult than usual. At FinSec, we can help with capital raising using this type of property as security and can work with all the various scenarios that present themselves in such cases.

If the property consists of residential floor space greater than 40% then the rules state that the loan will be regulated. If the property is owned by an individual and is occupied by the borrower or immediate family, we would be offering a regulated second mortgage; but if the property was let out and met the occupancy requirements, then a buy-to-let second – or, if no other investment properties were owned – a consumer buy-to-let second would be offered. However, for incorporated businesses and partnerships, a secured business loan would be possible on an unregulated basis for business purposes, with the owners acting as guarantors.

In some cases the property will be owned by a company or partnership, in which case the business is still the named borrower and will provide the security, rather than the directors or partners. Whatever the property circumstances, other aspects of a case may determine the best route to be taken. If the borrowers have good existing terms for any first mortgage on the property, then leaving this in place and raising funds with a second charge may be the best route. But in some circumstances there may be a second charge already in place, which the borrowers would rather not be forced to repay and therefore, with relevant consent and a deed of priority, a third charge may be possible.

For business borrowers lucky enough to own unencumbered property, the choices can be surprisingly limited. A first mortgage capital raise can be hard to obtain, much more so when it’s a semi-commercial property.

There are many property scenarios that may present themselves. Listed below are those I can think of which I have dealt with in my career:

• retail shop with owner’s flat above or accommodation attached
• retail shop with residential accommodation let out on AST
• B&B and guesthouses
• pubs, bars and restaurants with owner’s flat above
• boarding kennels and cattery businesses and small holdings with owner’s accommodation
• home-based health and beauty clinics
• house with industrial unit, yard, garage, nursery or aquatic business attached.

In conclusion, there are many aspects to a semi-commercial case. The best route will be determined by the purpose, occupancy and precise details of the property, all of which have a strong bearing on the regulatory position and what choices of lender may be available. Whether a regulated first or second mortgage, buy-to-let, unregulated business loan, limited company or LLP loan, or even a third mortgage, one thing is for sure: no two deals will be the same and getting your customers the money they want on terms to suit will be most satisfying to you, the broker.