FLEXIBLE LENDING CRUCIAL FOR SUPPORTING MIXED-USE INVESTING - STEPHEN PALFREEMAN - BRIDGING & COMMERCIAL
FLEXIBLE LENDING CRUCIAL FOR SUPPORTING MIXED-USE INVESTING
Diversification is key for all sorts of investors, from those focused on stocks and shares to those who prefer to put their money into bricks and mortar. And for that latter group, it means more than simply considering a variety of locations but also different types of property.
In recent years there has been a big move towards holiday lets, for example, off the back of the staycation boom, while at Tuscan we have also seen a spike in interest around mixed-use assets.
Properties that bring together both the residential and the commercial, effectively under one roof, can be a powerful addition to any portfolio.
There is a hurdle though, in the form of mortgage finance.
We know that traditional mortgage lenders have become more cautious when handling these cases, hiking their rates, or tightening their criteria. It simply makes financing them less viable, at least in the short term.
We have utilised a different approach at Tuscan, however, instead focusing on how we can better support investors looking to add these properties to their portfolio or simply refinancing existing ones.
One of the most effective ways in which we have been able to do this is by assessing the property against our residential product, rather than on commercial property terms.
Operating in this way can deliver significant, tangible benefits to investor borrowers.
First and foremost, there is the simple question of rate.
Commercial mortgages, understandably, come with higher interest rates than what you would tend to pay on a residential case.
The fact Tuscan can treat mixed-use assets as if they were a regular residential deal means clients enjoy a lower rate on their borrowing, a feature that’s attractive at the best of times, let alone in the current market given how rates have changed over the last year or so.
There’s also the question of leverage - commercial borrowing not only comes with higher rates, but it can be much more limiting in terms of LTVs for borrowers.
It can mean those looking to invest in mixed-use assets therefore have to stump up much larger equity stakes at the outset.
Again though, as mixed-use assets qualify for our residential product, it opens up the possibility of accessing funding at much higher LTV levels.
That combination of more competitive rates at higher LTVs is an extremely compelling one for a wide range of property investors who have recognised the opportunities that mixed-use assets present to their portfolio.
The fact that mixed-use assets qualify for the residential product at Tuscan brings additional benefits beyond the obviously financial such as lower rates and higher LTVs.
There is a clear criteria benefit in that there is no need for interest coverage ratio (ICR) calculations.
Brokers will know only too well how the ICR has proved a problematic hurdle for many landlords of late, with the growth in interest rates forcing many to consider the sort of rental hikes that may not be palatable to their existing tenants.
But perhaps most important of all, it opens up clients to the potential of a much more satisfying borrowing process. This may mean utilising our Fast Track service, for example, which puts a greater emphasis on the use of short form valuation and a streamlined legal process.
The result is the much faster progression of eligible cases, ensuring clients are able to get their hands on the funding they need swiftly, meeting any pressing deadlines that may be in place.
We have seen a significant shift in attitude among landlords towards the way they fund their portfolios currently.
In years gone by, landlords have been happy to lock in a rate for a few years, comfortable in the knowledge of knowing what they will be paying for the foreseeable future.
But as interest rates have risen so sharply, that has become a much less appealing prospect.
Instead, a significant number of investors have opted to embrace some breathing space, making use of a bridging loan for a year or so in the expectation that when rates drop they will be better placed to refinance onto more long-term forms of property finance.
Plus, of course, at Tuscan, we don’t charge exit fees or ERCs, which again can give the client the utmost flexibility in terms of their future plans.
It’s not just a case of waiting it out either, but rather using that time to carry out refurbishments, secure better tenancies, or even sell off some of the property assets in the portfolio to put themselves on a surer footing.
The interest in mixed-use is unlikely to disappear any time soon, making it all the more crucial for brokers to identify the lenders best placed to support their investor clients.
Lenders who can deliver competitive terms, a slick process, and a reliable track record are always likely to stand out from the crowd.
Read the article on Bridging & Commercial.
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