By Carl Graham, Regional Director - Manchester Office, Tuscan Capital Limited.

One of the most fundamental decisions for any investor is working out which sort of property to invest in. Different forms of property will appeal to different sorts of tenants; understanding that from the outset is crucial if the landlord is to secure a decent return on their outlay.

This is why it’s been so interesting to see many landlords express an interest in mixed-use assets in the North, of late. Savvy investors have recognised the opportunity that comes from backing property assets which not only deliver for residential tenants but commercial ones, too.

Industry analysis has pinpointed both the North West and North East as particular hotspots for mixed-use properties, accounting for more than a third of the properties listed for sale at the moment. It’s clear that growing numbers of investors have picked up on this supply and are looking to expand their portfolios by adding mixed-use properties to them.

The case for mixed-use investments
There are good reasons why these properties are catching the eye of those looking to invest in property in these regions. First and foremost, there is the simple appeal of diversification - by putting their money into assets which combine residential and commercial tenants, landlords can spread the risk, reducing the chances of suffering unduly if either tenancy type starts to struggle.

The fact that these properties are in the North is crucial, too, since a range of different data sets have emphasised just how resilient the property market is in this region. For example, Sourced Financial noted the North is outperforming the South on capital appreciation and rental yields - absolutely crucial selling points for investors.

This is supported by the recent house price index from Halifax, which found that while all areas of the UK have seen values soften over the last year, those in the North have been best at retaining value.

Finding the right finance
While the attractions of this form of investment are clear, it's equally true that some investors 
have faced challenges in acquiring the financing needed for purchasing or refinancing such assets. The difficulties faced in the economy, and the mortgage market in particular, have led to some lenders becoming far more cautious around how they handle such cases, imposing restrictive criteria or unattractive interest rates.

This isn’t the case across the board, however, with some lenders embracing a different approach. The fact Tuscan can write such cases on our standard residential product has proven distinctly popular with mixed-use investors in the North, since it opens up the ability to access loan-to-values (LTVs) akin to the residential line, as well as sidestepping the issue of interest coverage ratios (ICRs).

As advisers know, ICRs have been an enormous pressure point for investors over the last year, and being able to remove them from the equation has been hugely welcome for investors in this region.

We have seen a suite of investors in this position take a 'wait and see' approach. With rates rising and ICR tests becoming more challenging, the prospect of locking into a lengthy fixed rate is far from appealing. Instead, we have seen more investors in this region increasingly likely to make use of a bridging loan, because of those more favourable underwriting criteria and comparable rate costs.

Crucially, they then have an exit route, so that if or when interest rates on longer-term financing drop, they will be able to swiftly refinance rather than have to worry about exit fees.

What lies ahead?
The fact that the North has performed so strongly 
compared with the South means that it will continue to attract the attention of investors, whether they are just starting out or looking to add to already impressive portfolios.

The benefits delivered through mixed-use will also remain strong, as investors aim to tap into better returns while guarding against future downturns.

It’s therefore crucial for advisers to pinpoint the lenders best placed to support them with their borrowing needs, which have experience handling these sorts of cases, and can provide reliable and fast funding.

Until interest rates more generally start to fall, the case for adopting a 'wait and see' approach through a bridging loan will remain a compelling one.

Get in touch to find out more by calling Carl Graham on 07759 648713 or emailing

Read the October edition of The Intermediary Magazine here.

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