A Semi-Commercial Catch-22 Requiring a Bespoke Solution

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Often, brokers and their clients approach us already knowing that they’ll need a tailored solution. They’ve spotted an opportunity, they understand that mainstream lenders might be hesitant, and they fully expect to use specialist finance to secure the deal quickly.

But we also consistently hear from those who find themselves needing specialist finance unexpectedly. This is especially common with semi-commercial investments. These assets, with their nuanced details, can invite complication and unforeseen challenges.

Say an investor identifies a mixed-use building for sale: a retail unit on the ground floor with two flats above. The flats are tenanted and producing good income, but the commercial unit has been vacant for a few months. The vendor drops the price to achieve a quick sale, and the investor sees a perfect value-add opportunity. With a refurbishment and a new tenant in place, the property could be worth significantly more within a few months.

The investor moves quickly and agrees a purchase at £750,000, confident a mainstream lender will fund the deal, especially since the residential part is already income-generating.

But there is a commercial vacancy issue the investor hasn’t taken into account. The mainstream lender they approach has an especially cautious outlook and with the shop empty, the valuer applies a restricted market value, and the lender reduces the maximum LTV. The investor is told the lender can only offer 50% LTV, because there’s no lease in place and therefore not enough income to satisfy their strict criteria.

The lender can take another look at the deal, but only once the commercial unit is let out. This would require the investor needing to find funding to buy it and refurb it, but the lender won’t lend until it has already been refurbished and tenanted. A catch-22.

But, unlike many mainstream lenders, we can lend on semi-commercial properties where certain elements of them are vacant. In this case, we could provide a bridging facility at 70% LTV on the purchase price, with which includes capital to cover the refurbishment. That gives the investor enough funding to complete the purchase, carry out the improvements, and get the shop ready for letting.

Also, as refurbishment works can place pressure on monthly cashflow, the lender can structure the loan using rolled interest, meaning the investor isn’t making heavy monthly payments while the unit is being improved and marketed. This allows them to focus on completing the works and securing the tenant rather than worrying about short-term affordability.

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When a semi-commercial case is stuck in a catch-22 between criteria and structure, a quick sense-check can help unlock options.

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FAQs

What is a semi-commercial property?

A semi-commercial property is a building that combines both business and residential elements in the same space. A pub with a flat situated above it is a typical example.

Why would a lender lower the LTV?

When lenders lower their LTV, it signifies that they’re lowering their risk. A higher LTV is considered riskier for lenders as the borrower involves has less personal equity in the property/investment. A lower LTV means the borrower has to have a higher deposit.

What is Market Financial Solutions’ maximum LTV for a semi-commercial loan?

Currently, our semi-commercial bridging loans have a maximum LTV of 75%. Our semi-commercial BTL mortgages go up to 70% LTV.

Can a Market Financial Solutions bridging loan only be used for a semi-commercial purchase?

No, our bridging finance can be used for a range of semi-commercial investments. This includes purchases, refurbishments, refinancing, and more. With every deal, our brokers and borrowers will be assigned a dedicated underwriter from day one. They will be able to break down exactly how our funding can be utilised, and under what circumstances. What’s most important to us is the exit strategy, and feasibility of the investment.