Mortgage for part commercial part residential

deshg

Hey everyone,

Unfortunately the flat myself and my girlfriend were about to buy just fell through but we've found another one quite quickly. The issue is it's a 3 storey freehold terraced building that used to be fully residential and 10 years ago got planning consent for the ground floor to be used as a clinic. Since then it's been used as a beauty parlour/nail bar (with a couple of treatment rooms) with a shared entrance with the residential section upstairs. They have unofficially split the upstairs into 2 one bedroom flats which was done about 3 years ago (on the plans it's listed as 1 residential unit).

I've spoken to my bank (HSBC) and they apparently won't lend on it at all because it's commercial and residential on one title (and right now they'll only lend on commercial if it's owner occupier). The vendor (who runs the commerical unit) is happy to take a lease for the commercial space on completion so there would be guaranteed rent from that immediately (about £1200/month). And the 2 flats above would rent for about £1000/month each so that would mean a theoretical value of £3200. The price is £500 000.

Ultimately we'd want to do some work and live in part of it but for the moment we're happy to rent it all out (which probably makes lending easier) but just need to find someone who will lend on it as it is?

I have spoken to my broker who helped with a few mortgages in the past but wanted to see if anyone knew of anywhere I could go that would be likely to accept this kind of proposition?

Thanks so much for your help, it's massively appreciated.

Dave

Thrugelmir

deshg wrote: »

They have unofficially split the upstairs into 2 one bedroom flats which was done about 3 years ago (on the plans it's listed as 1 residential unit).

No planning permission? The property could fall foul of building regulations.

The property will be valued as 1 unit. As its split into flats this may well reduce the mortgagable value as it currently stands.

Suggest you move on and find something more suitable. As initially you will require a commercial mortgage even if you subsequently convert the property back to residential use only.

deshg

Thrugelmir wrote: »

No planning permission? The property could fall foul of building regulations.

The property will be valued as 1 unit. As its split into flats this may well reduce the mortgagable value as it currently stands.

Suggest you move on and find something more suitable. As initially you will require a commercial mortgage even if you subsequently convert the property back to residential use only.

Hi Thrugelmir,

Thanks for taking the time to respond and yes there are inevitably issues with building regs (but more to do with planning). We are aware of this and is part of the reason why it's cheap, i'm aware we can probably only get a commercial mortgage, this is fine but i'm trying to ascertain which the best lenders to approach on this basis are, as HSBC won't lend on it at all given the single deed (even via a commercial mortgage).

Thanks,

Dave

Thrugelmir

Try the High Street banks for funding.

May be an idea to have a plan worked out and fully costed that you can present to a potential lender. As to what you intend doing to the property.

Returning it to full residential use may be a more attractive lending proposition.

deshg

Thrugelmir wrote: »

Try the High Street banks for funding.

May be an idea to have a plan worked out and fully costed that you can present to a potential lender. As to what you intend doing to the property.

Returning it to full residential use may be a more attractive lending proposition.

Thanks for that and i appreciate and agree with your comments, the issue at the moment is which lenders specifically are likely to accept a proposition like this (given it's part resi and part commercial)?

Thanks,

Dave

holly_hobby

Am I right - that there is only one route of access to the flats, and that is solely through a shared access withthe commercial prems ?

H

deshg

holly_hobby wrote: »

Am I right - that there is only one route of access to the flats, and that is solely through a shared access withthe commercial prems ?

H

Hi Holly Hobby,

Yes you are correct. The frontage is the same as it always was when residential, with one main front door and a window (the only change is the addition of a sign above the door and window). The front door leads into a hallway and the stairs in front of you go up to the residential area and a door to the right goes into the commercial section.

Thanks so much for your help,

Dave

Thrugelmir

Is there a fire escape route for the flats?

deshg

Thrugelmir wrote: »

Is there a fire escape route for the flats?

Probably not quite as it should be There's the main staircase which is obviously the main exit route (although i suspect the doors leading onto the hallway will need to be upgraded to be 30 min fireproof ones). There is a large single storey extension to the rear of the property so there is currently a fire escape route out of the rear windows of the first floor onto this flat roof and then into the garden. I think i'm right in saying that this could also be considered a fire escape for the 2nd floor (as it's only 1 floor down to the flat roof from the rear 2nd storey windows) although i could be wrong (fyi the second storey has always been there and is not a loft conversion or anything like that). There is likely to be some upgrade conditions on the purchase (such as fire regs) but hopefully these should be surmountable.

Thanks very much,

Dave

holly_hobby

What feedback/advice has your regular broker given you on this ?

Which lenders have they approached for you ?

The immediate problem that stands out is that of the shared main access between the commerical and residential aspects - thats the main reason IMHO why although the upstairs of the property were converted into "flats", the deed was never split by the owner. (notwithstanding any meeting of health and safety aspects)

Are the flats currently let or resided in by the commercial tenant - or are they empty ?

Has the vendor confirmed why the deeds were not split ?

Who is the vendors current lender ?
Do they know of the "coversion" ? (if they do, that would be who to start with, as they are already agreeable to the prems & its comm/res aspect with the current owner).

Have you asked HSBC if you don't let the flats, would they reconsider their position - or do you need the rental income to make the figs work ?

H

deshg

holly_hobby wrote: »

What feedback/advice has your regular broker given you on this ?

Which lenders have they approached for you ?

The immediate problem that stands out is that of the shared main access between the commerical and residential aspects - thats the main reason IMHO why although the upstairs of the property were converted into "flats", the deed was never split by the owner. (notwithstanding any meeting of health and safety aspects)

Are the flats currently let or resided in by the commercial tenant - or are they empty ?

Has the vendor confirmed why the deeds were not split ?

Who is the vendors current lender ?
Do they know of the "coversion" ? (if they do, that would be who to start with, as they are already agreeable to the prems & its comm/res aspect with the current owner).

Have you asked HSBC if you don't let the flats, would they reconsider their position - or do you need the rental income to make the figs work ?

H

Hi Holly hobby,

My broker agreed that it was going to be tricky and is in the process of trying to find some lenders for me, i'm waiting to hear back from them so don't have any more information at the moment. With regard to the flats i'm waiting for confirmation from the estate agent but as far as i understand it the vendor lives in one of the flats and i believe her son currently lives in the other one (although until recently she said they were both let out).

I do not know the vendors current lender although she has owned this building for years and the flats were only converted 15 yrs ago in a slightly shoddy fashion so i suspect that the lenders were never told about this (as if they had been surely they would have requested planning permission/building regs consent was obtained)?

With regard to HSBC unfortunately the reason they won't lend is not the flats, it's the fact there's a commercial unit in the building (within the same title) and they say currently they will only lend on commercial units if they're owner occupier businesses (rather than as rental or other investments) which seems nuts, but just goes to show how tight lending is at the moment i guess....

Thank you so much for all of your help,

Dave