We’re back! After a few weeks of dealing with the crazy amount of completions we seem to have had, and a week of an un summer holiday in Devon it’s back to blogging!
This week we are talking about semi-commercial mortgages. Specifically the valuations for these mortgages as they are so important.
When someone calls me up to ask about semi-commercial mortgage quotes and costs, the assumption from them would be that we are looking for the ‘lowest cost’ option and that’s not what I am thinking! There are a number of semi commercial lenders back in the market now, most at 75% LTV and some at 70% and their rates are similar. There are pros and cons of them all and we will discuss that. The most important part of that comparison is not necessarily rate though, the valuation methodology is often overlooked and that’s something I will always want to cover at the beginning.
How do you value a semi – commercial building?
The commercial element can be valued as a vacant building, or with the benefit of a tenant in the property. The difference is usually about 10-15-% depending on the location, tenant and lease length. Some lenders will use the vacant value and some use the market value and that can make a big difference to the amount you are able to pull out of the property.
What about the residential element?
It’s more common now to see HMOs above a commercial unit. It’s an easy way to up your rent, and given the location (usually above a parade of shops) there is less issue with demand when letting to students or professionals than to a family. Again the value of an HMO can depend on if you’re using the vacant or bricks and mortar value, or the market value. There is an assumption that as you are paying for a commercial valuation that you will get a commercial figure but this isn’t necessarily the case!
Some lenders will use the market value, which is fantastic for pulling as much money out as you can, and some will (as with the commercial element) use the bricks and mortar, or vacant value.
As an example, we have recently refinanced a semi commercial property for a client. It is a shop with a 4 bedroom HMO above. The vacant value is £285,000 and the market value is £310,000. This means that the client has been able to pull out an extra £18,750 by using the market value of the building. This can be far more important than a small difference in interest rate. This client has used those funds as a deposit for another BTL property, so the onward return is increased even further.
So how do you know what to do and who to use?
This is where you need a good specialist broker! We have great relationships with our lenders, we only use lenders that we know and trust and this means we know their criteria and appetite inside out so we know what to expect! With rules changing so often at the moment, it’s important that your broker specialises in these types of cases and understands valuation methodology.
As always give us a call if you have any questions.